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Economic Recessions: A Problem That Affects Us All

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Recessions Affect YOU

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(“Uncle-Sam-i-Want-You.”)

Introduction

The US has been struggling with its economy since its start as a nation. However, all economies go through ups and downs- a characteristic of every nation. In the US, we have a capitalist system, which means that the market goes fairly unregulated, and the government is really only here to ensure no monopolies occur. There are many advantages to our system, like freedom and low prices, but with those good things come disadvantages like inequality and poverty (“How Capitalism Works”). Also, with our market comes economic growth, where the poverty rate is low and prices are good, and recessions, and sometimes even, depressions. These recessions have devastating consequences, most more significant and impactful than we can even imagine.

Personal Interest

Since middle school, when we started learning about different countries and how they worked, I’ve always been interested in the different ways a country can be run and what effects those choices can have. We get so immersed in our lives that we often forget what choices brought us to the place we are today For example, who influences what job you are likely to have in the future, and why do our cities look that way they do? We are so used to the way things are people don’t stop to think what other options there are, or why different places are different. All of the questions I just asked can be traced back to our economy. Specifically, workers’ rights, inequality, and opportunity for success have all been interesting topics to me. Since the economy was too broad a topic, I decided to narrow it down to when our economy is at its worst. Since depressions are so rare, I came to the topic of recessions, a period of time, usually lasting months, where the economy is at a low. Usually, layoffs happen, prices go up, and unemployment is high. Even when a recession is over, it can have long-lasting effects on a country. From there I began wondering who gets blamed for issues with the economy, and what our government has done to stop a recession. From there I linked the ongoing problem to a present situation: Is the government ready for the next economic recession?

To see more about why I chose this topic, click here: https://docs.google.com/document/d/12aPEWPxz_f7Ineg5r2ckzyvv7_JTm7qzB5rwGTYjKrE/edit?usp=sharing

Early Recessions: A Historical Problem

The US has been struggling with its economy since its start as a nation. However, all economies go through ups and downs- a characteristic of every nation. In the US, we have a capitalist system, which means that the market goes somewhat unregulated, and the government is really only here to ensure no monopolies occur. There are many advantages to our system, like freedom and low prices, but with those good things come disadvantages like inequality and poverty (“How Capitalism Works”). Also, with our market comes economic growth, where the poverty rate is low and prices are good, and recessions, and sometimes even, depressions.

The first depression really came about with the rise of industrialization, in the late 1800s. Before that, America was largely agrarian and people were less reliant of others, largely living off of what they grew in their own farm. When industry spiked, so did a connected economy. There were factories in big cities, and railroads were built across the country. After the main investor in the railroad system declared bankruptcy, a huge wave of many other investors followed in their footsteps until eventually, only around ⅘ of the total railroad companies remained (Roque). This decline in the economy had a ripple effect, and since all economies are interconnected, everyone experienced the aftermath. This event, known as the first economic depression in US history, is also thought to be the cause of The Haymarket Affair, which left seven people dead (Roque). The effects of this first depression were similar to the effects we have today, like lost jobs, unemployment, and lower wages.

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The Haymarket affair of 1886 (McNamara)

Everyone will always be affected by economic depressions and therefore everyone will notice it. One seemingly unlikely but noticeable impacted group is children, and according to Ariel Kalil, an economics professor at the University of Chicago, “Parental job loss adversely affects educational attainment”. Even children, who don’t have to support themselves, can still experience the consequences that their parents experience. Everything in our economy is interconnected, so even the slightest mess up can have devastating effects.

In the past, during recessions, the US government has implemented policies, not only cutting taxes for the people but allowing the government to put money into struggling banks, in order to ensure that the entire US financial system did not collapse (Weller). Now, whether this was the right choice and whether this will be the right choice in the future still remains up to debate. The actions taken by the government in those times of recession have worked in order to uplift the economy from its bad state, but the question still remains if the economy would have been able to ultimately uplift itself, and come back stronger than ever (Romer 14). It is entirely possible that the economy is weaker today than it could be because of action that was taken following the Great Recession and the Great Depression.

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People line up in front of a soup kitchen during The Great Depression (“The Great Depression.”)

For more info on historical background, click here: https://docs.google.com/document/d/1i38AAhgyof-ik2fgisHdFjT-2kJ2CWry7wacOJt0VoM/edit?usp=sharing


A Modern Day Problem: The Great Recession

The most recent major recession in the US has experienced is known as the great recession. Most recessions or depressions can be traced to one source. In the case of the great recession, it was the mortgage crisis. While the full explanation of the underlying cause of the crisis is complicated and multifaceted, it can be summed up as the fact that banks were giving mortgages to high risk and unfit buyers. While the banks were selling homes to unfit buyers, the government failed to recognize the issue, not intervening (Amadeo). The fall of the housing market started a chain reaction, where major companies ensuring the mortgages went bankrupt, and eventually the stock market crashed, making the situation worse.  Inequality saw an increase, with a total of 44 million Americans under the poverty level (Eckholm). One notable effect of the recession was the toll on local government. During the recession, the “median household income fell 8 percent”, which decreased tax revenue immensely (Langley). All of a sudden, it was difficult for the government to spend money on public services, due to the lower budget. All while there was an increase in demand for services like public education, public transit, and others. To attempt to account for the lost money, there had to be layoffs, where a significant amount of employees lost their jobs (Langley). With more unemployment came more need for public services, while there was even less spending money coming from the taxpayers. At this point, it is apparent how the recession did so much damage, so fast. The nature of our economy ensures a loop that seems virtually unstoppable without some exterior force.

While Wall Street, banks, and large corporations have the most control over the economy, it’s the government’s job to recognize and stop a recession.  It is in the best interest for banks and corporations to keep the economy running smoothly because they are the ones taking the hit, but it is inevitable that there will be mistakes. In the case of the Great Recession, the mistake was mortgaging to unfit buyers. The government should serve as a check, having the power to assist in some type of correction, even if the solution doesn’t completely undo the issue. While the role of the government is up to some interpretation, especially in issues so complex as the economy, for the most part, the government should protect the people.

The dilemma the government has to face when dealing with recessions is a difficult one.  In 2009, the government took the safer choice and passed the Troubled Assets Relief Program and the American Recovery and Reinvestment Act (Amadeo). The Troubled Assets Relief Program bailed out the banks, loaning 115 billion dollars to banks. Ultimately, the government opted to bail out the banks because there were no banks that could ultimately bail out the banks that were going bankrupt. If the government hadn’t made the decision to bail out the banks, “we would have ended up with no financial system … we truly could have had another great depression on our hands” (Amadeo). The American Recovery and Reinvestment Act was a plan to kickstart the economy and get it up and running. The plan made tax cuts, gave unemployment benefits, and other actions to help those most affected by the recession, and needed to bring the economy back to life. Ultimately, the plan ended the recession.

The Great Recession also has an interesting correlation with labor unions. A few years after the recession, only 11 percent of Americans working under wage and salary position was part of a union. Perhaps even more surprising is the fact that 45 percent of Americans approved of labor unions in 2009, in the thick of the recession (Milkman, Luce). Now, did the fact that Americans weren’t approving of labor unions help kickstart the recession of did the population’s opinion change after the start of the recession. The government took a very hands-on course of action, bailing out banks using millions of dollars, and an increase in public services. People were angry that the lower class, represented by labor unions were receiving benefits due to the recession, one example being the American Recovery and Reinvestment Act. The working class was to blame in some people’s opinion, as they had been the unfit candidates for mortgages, kickstarting the entire recession (Milkman, Luce).

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(Feldstein)

For more info on the modern problem, click here: https://docs.google.com/document/d/1gtbpad2zznSqUEa1CAKWoUOo7iaw6O9_Py4rNBtJh0o/edit?usp=sharing

A Problem Worth Sacrificing For

In order to combat the chance of experiencing a recession in the future, there are several measures individuals could take in to stop a future recession. One solution is to simply not dig yourself too deep when it comes to credit, and paying attention to your budget. It sounds simple, but in the case of The Great Recession, bad mortgages were given by banks, ones that were not paid off as needed. In the case of the Great Depression, people put too much into the stock market, and when it crashed, the world saw devastating consequences. Both downward shifts can be traced back to bad money management, therefore good money management would theoretically stop future disasters from occurring.

Another way you could take the first step to stop a recession is to start blaming the government for the problems society, especially the lower class, has to deal with.  Our economy is capitalist, and when people fail in the system, it’s widely regarded by others and themselves as being their fault. The concept of Social Darwinism is still more prominent in the United States than any other major country. A shift, even a small shift in how the population views the government’s role can have significant effects on what the government has to accomplish. European countries like France, Finland, The Netherlands, Denmark, and Iceland all see lower rates of income inequality, and less devastating effects when recessions do take place. What all of those countries have in common is that the worker is valued more than the consumer, and when things are wrong there are strikes, protests, and unions forming, giving the government an obligation to address whatever issue is being presented.

One large scale solution, electing Social Democrats, must come from your actions. If America can make a shift in party control, and swing left a significant amount, enough to give the government more control of the economy, especially banks or the housing market, stopping a recession before we’re in the thick of it is a whole lot simpler. Also, more welfare and other benefits would have the reverse effect of a depression, giving to the people instead of taking away.  Social Democracies seen in other places around the world have proven to have benefits, one being not experiencing as devastating effects from economic depressions or recession.

For more info on what you can do, click here: https://docs.google.com/document/d/1hmoq2Hadvtzoqp_VZRggy1shJ8sS9S7ZSl6teG94tRo/edit?usp=sharingQuick Survey: Has a recession affected you or a family member in the past?https://forms.gle/Siw82mEd9T3GKkbv7

Full Works Cited: https://docs.google.com/document/d/1b5VNvwwdZFnSXmSCKi-6E3GSKi-LrWUrEtMClVf4KHA/edit?usp=sharing

Fell free to comment constructive criticism below!

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COMMENTS: 1
  1. April 27, 2019 by Justin Wong Reply

    Your project was effective in relating its problem to the audience. Your webpage was very articulate and did a good job of describing recessions, like the causes and effects. I wonder if the US will ever replace capitalism with another alternative system of production.

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