The United States is entering a recession, because I say so.
Such an outrageous claim is obviously unwarranted and lacks resonance in the economic community. I am simply a contributor presenting an opinion within the two-inch margins of a college newspaper. The United States is a nation built upon capitalism and the free-market economy.
Therefore, in theory, if I were allowed to assume complete control over every media outlet, I still could not sway consumer opinion in my favor for the following reasons: Institutionalized capitalism (for the most part) removes the financial ceiling, creating the limitless drive for profit. That freedom, however, requires everyone to surrender control to the economy. Along with the ceiling, the walls are lost. Citizens become servants of supply and demand, trying to keep one step ahead, while always lingering one behind.
As a result of its operational freedom, this entity appears resistant to external non-economic influences, but common sense says this is untrue. Where, then, is the deviation from theory rooted?
Consider, if you will, the illusion of the “market.” It is so named because in it goods and services are openly exchanged. Partners and competitors are titled as such on an arbitrary basis, and may exchange roles spontaneously. The “market” label seems fitting, except that participants in actual markets are physically present and can directly access sites of exchange. Merchants and consumers can remain up to speed on goods, innovations and price changes. Control resides comfortably within one’s purview.
On a present-day macroeconomic scale, however, this is simply impossible. The stock market is nothing like a bazaar. According to the U.S. Bureau of Economic Analysis, the national gross domestic product for 2007 was about $13.8 trillion. The larger the economy gets, the less informed about its mechanisms people become.
Imagine trying to run a shop in a bazaar hundreds of miles long. Suddenly, prices change regardless of what occurs in your immediate vicinity. Merchants group together, goods become territorialized, and agreements are formulated – all in a continually accelerating fashion. Your assets do not grow fast enough to keep up, and you lose touch with the market. Ultimately, you place your trust in individuals who devote themselves entirely to watching market growth.
Economic experts filter through countless transactions and data to find what matters to specific groups of consumers. With their assistance, the people – servants of supply and demand – act to remain one step ahead. When the stock market moved into trading centers in the 1920s and subsequently crashed, however, these specialists began to assert that their insight could be used to make predictions. Experts became forecasters, using statistical trends to recommend future actions. What ensued was an evolution of consumerism philosophy based on buffering the turbulence of the market for investors.
As of March 2008, these forecasters are predicting a recession, which is a 6- to 24-month period (two to eight fiscal quarters) in which the economy “slows down.”
There are problems with this concept. First of all, the market fluctuates randomly due to the innate shortsightedness of consumers. Presenting those consumers with “data” suggesting a coming recession has a large-scale psychological effect, causing them to adjust their spending habits accordingly. Investors jumping on the recession bandwagon will sell stock shares, potentially causing a drop-off in the market. Less spending and unbalanced investing will result in decreased revenue for businesses. The government will eventually intervene, initiating tax cuts, limiting federal spending and creating “economic stimulus packages.” The market is massive, but it is apparent that its ebbs and flows are a result of individual consciousnesses.
Another problem with the concept of recession is its somewhat vague definition. The New York Times consistently implies that a recession is two or more quarters of GDP decline.
This leaves unemployment unaccounted for, and does not differentiate between sources of industrial output. In 2006, Ford lost $12.7 billion while ExxonMobil made $39.5 billion and United Airlines emerged from Chapter 11 bankruptcy to enjoy a post-9/11 recovery – all major corporations on different parts of the market swing, each of which will respond uniquely to market “slowdown,” and none of which can accurately represent GDP variation.
Wide-scale federal remedies are efficient from a utilitarian perspective: They provide the “greatest good for the greatest number,” as explained by philosopher Jeremy Bentham. However, they tend to be one-dimensional, in that they operate under the assumption that the market and all its constituents ebb and flow at the same pace, when this is virtually never the case. It is also important to remember that federal spending is not unlimited, and will consequently have its ups and downs as well. The idea is that the population can pay for the programs when the market recovers – assuming the market does recover.
In the end, there are too many assumptions and unknowns. In a similar economic situation in 2001, President Bush spent some of the national surplus on the tax cuts he promised before his election. Seven years later, Americans are paying by the billions for an unsuccessful military operation, and now have an outstanding public debt of $9.4 trillion, according to the U.S. Department of the Treasury, and are “facing another recession.”
I can criticize eager forecasters, shock-value media and hair-trigger spending programs. But in the end, I don’t have a clue, either. If recession is like the common cold of the economy, maybe it is best to let it pass. Saying so, however, would be assuming that it would pass … and that would be forecasting.
Mohammed Ibrahim is a senior majoring in pre-med biology.