Economic trends creating recession

When looking for cause of the currently slowed economy, it is difficult to put blame on any one specific thing.  The housing market seemed to be the cause for the start of the recession as people were buying houses they could not afford based on credit that could not be backed up, but that seems to be the trend among Americans right now.  

     I am guilty of it just as the next American, but the reality of the situation is that Americans have lost perspective of what a true need is from a true want.  Need versus want comes up in a variety of classes especially marketing and economics; however they are viewed slightly differently from each viewpoint.  Economists teach need verses want as what markets have a better shot of staying consistent in the long-run.      

     For example, the clothing market will always be somewhat stable because clothing is viewed as a necessity, therefore making it safer to invest in.  Marketers take it a step further because they view this necessity as an opportunity to sell more clothing than really necessary.  Marketers who do their job well convince consumers that instead of needing to own only two pairs of jeans, they really need five; five pairs of jeans that are “designer” and cost substantially more than what jeans are normally priced at. They create a need.  Take cell phones as the next example.  By today’s standards, cell phones are a must for everyone from age 13-75, but that was not the case even five years ago. I am only twenty years old and remember a time where pay phones were regularly used.  Recent technology development in cellular devices, coupled with strong willed marketers, has created a reality where everyone needs a smart phone.  

Landline service is still being offered by all major cable companies (including Time Warner who throw in a free DVR device) and is usually offered for around $20 a month, perfect too for anyone making a lot of long distance calls. When it is an additional $30 a month just for the data package provided by Verizon, on top of the regular activation plan, on top of the actual cost of the phone itself (which varies depending on how “smart” a phone wanted).  This number climbs well above the standard land-line service.  So why does so much of society still buy costly smart phones they can’t afford and feel the need to skip out of this immense money saver in a state of recession? Because cell phones are considered more of a necessity rather than a luxury; people think they cannot live without cell phones, when really, cell phone service is not needed at all.  

     Let’s look at the public sector for our next example, aka the government. According to the 2010 census, local and state governments employ 14,775,679 people with full-time jobs creating a $64,833,576,895 payroll for those jobs.  Add in 4,829,604 part-time employees and the $5,591,992,233 payroll that they produce, $70.4 billion of taxpayers’ money go right back into the pockets of Americans.  This is a staggering number to me, and represents inefficiency within our own government.  Remember that this is only state and local government jobs. Curiously enough, there was no data available for the federal side of things. However in a state of history where our debt is over $56 trillion (rising by the second, check it out at usdebtclock.org) it seems we have a bit of an imbalance.  The way to survive a recession is to not flood the market with government jobs.  This is like putting a band-aid on a broken leg.  Using taxpayers’ money to create more jobs helps in the short-term, but it takes away from revenue that can be applied to long-term growth.  This is one of the many reasons that the debt had raised $10 million just while I was writing this article.

     Inefficiency is all around us. Just while driving to Vermont over holiday break for a ski trip, my friends and I noticed that many highways (particularly in New York) had mile markers every tenth of a mile! Even if each sign only costs $20 a pop, that adds up very quickly.  Putting mile markers every five miles would save about $1000 for every five mile stretch of highway. Small potatoes I know, but every penny counts when our country seems to be bleeding money from every orifice possible. 

     Of the $56 trillion of debt we are in, about a third of that is student loans.  I myself, along with the majority of students reading this, have some sort of student loans taken out to get through school.  While I am thankful for the opportunity this presents, it seems the job market for educated jobs is bloated. Examples of this can be seen in average salaries of blue-collar jobs versus white-collar jobs. A mid-career waste disposal manager makes on average $47,900 while a mid-career high school teacher only makes an average $43,564, a 9% difference. A bricklayer will on average make 8% more than someone who has a Masters in social work, each making average salaries of $44,380 and $40,754 respectively (all statistics as of 2009 from blogs.payscale.com).  

These examples show that too many people are in college, and there is not enough demand for the current supply of educated jobs. In theory, the market should eventually even out, but when money is so easy to obtain to go to college, why not take advantage? Colleges also take advantage of this as they can up-charge so much for tuition because students are paying with borrowed money, thus reaping the benefits that the current system allows and paying employees essentially with government money being borrowed from the students attending the college. 

This cycle of using debt to create jobs again works in the short-term, but kills long-term growth.

Essentially, America is sinking because the current system does not allow for the markets to self-correct.  There are a number of reasons to why this happens, but politicians need to recognize this and start working on solutions in a timely manner.