We’ve seen a combination of economic theories come together to try digging out of this economic recession. So far, the government has spent money on propping up our financial institutions that were “too big to fail,” invested in infrastructure and energy, reduced interest rates, cut taxes and put money back into consumers’ pockets to give the economy a jolt. We turn now to lessons in economics to learn what we can do to prevent further collapse and get back on-track and restore our status as a global economics super power.
Anyone who studies basic economics saw the current recession coming for several years now, although it was hard to predict just how hard and how fast we’d fall. Mere months before the bottom fell out, causing enormous financial institutions and mortgage giants Fannie Mae and Freddie Mac to collapse, Treasury Secretary Henry Paulson was quoted as saying, “the fundamentals of the economy are sound.” In Economics 101, students learn the signs of a recession, which are job losses, exports support manufacturing, a drop in housing prices, a decline in profits, limited impact of short-term stimulus dollars, rising inventories, artificially low interest rates, lack of buyer confidence and lack of investor confidence. The American economy had all the ingredients for the perfect disaster.
Microeconomics experts have been busy examining how individual households and businesses make decisions. When consumer spending goes down, companies first cut jobs and sometimes they collapse. This, in turn, causes more consumers to stop spending because they’ve lost their jobs, which may affect other unrelated businesses. In the current economic recession, massive-scale job losses began in February 2008, when 63,000 jobs were shed. By the following September, another 156,000 jobs were lost, which was followed by an astounding 533,000 job cuts in November, which was the largest single-month job loss since the Great Depression. From December of 2007 to March 2009, there have been 5.1 million job losses. Over this same period, investor and consumer confidence has declined further, thus making it more difficult to rebound.
Top market economists disagree vehemently on how we can dig out of the economic recession. Some argue for a heavy-handed government comparable to Franklin D. Roosevelt’s, where the “New Deal” programs stimulated much-needed industries. Others argue for decreasing business taxes and regulation to create more jobs or investing in energy/infrastructure to create more jobs. Perhaps we really found our way out of the Great Depression through World War II production and exporting. The current administration has used a number of different approaches so far to stimulate our road to recovery, but eager Americans wonder when we’ll actually see the signs of a rebound.
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