Recession
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Recession
Abstract
As our country inches out of the recession, we have to look at how our country has bounced back in the past. This is not the first time that we have had a recession, nor is it the worst. In just a short time America has become the strongest financial power in the world. It has not always been easy with times like the great depression and the short recession in 2001. Our economy has a history of up times and down times, it is the natural way of things. Recently our economy has taken a sharp down turn, caused largely by banks failures and the financial crises, the “Bush tax cuts” and the recent extension of the Bush tax cuts and our government biggest deficit in history are all making the recovery from this recession problematic. In 2009 President Obama came out with a stimulus package to jump start the economy, and it may have quickened the recovery however the Republican Party was successful in demonizing the stimulus package that in the 2010 mid-term elections they were able to take control of the House of Representative and the focus in congress is now on deficit reduction. We will never know if the stimulus package, like President Roosevelts New Deal, would have been successful in getting Americans back to work and. It is best to keep in mind that recessions are a natural occurrence and we have always bounced back to be even stronger.
Recession
As the world remains in the worst economic times since the Great Depression, several factors begin to play in your life. Throughout this paper, we will discuss what can cause a recession and how it may affect our personal lives. As you read, keep in mind that there is always a bright side to everything. As I will discuss, the effects of a recession for some, mostly those that have the fortune to have and keep their job, will have positive and even advantageous effects.
What is a recession? This question does not have an easy answer and depends on who is trying to define the word. For example, retailers describe a recession as a drop in sales. However, not all retailers agree on how much of a percentage drop constitutes a recession. Some will say a 5% drop; others will say a 20% drop in sales signifies a recession. Manufactures measure a recession by a reduction in production. Labor leaders measure a recession by rising unemployment (Time, 1953). The National Bureau of Economic Research (NBER) describes a recession as a “decline in a countrys gross domestic product (GDP), or negative real economic growth. They provide the guidelines for judging a recession and determine the exact date it begins and ends. According to the NBER, a recession is a significant decline in the economy that lasts for more than a few months. This decline in the economy reduces the gross domestic product (GDP), real income, employment, manufacturing, and retail sales (Time, 2008). Simply stated, a recession can be described as:
People buying less
Decrease in factory production
Growing unemployment
Drop in personal income
Decline in the stock market
Recessions, or periods of economic slowdown, are common occurrences and vary in severity. According to economists, since 1854 the US has experienced 32 different periods of economic expansions and contractions. The average expansion period lasted 32 months and the average contraction period lasted about 17 months (US Dept of State, 2008). The current recession rivals the Great Depression and is compounded by our political process and our current period of partisanship.
The economic history of the United States has its roots in European settlements in the 16th, 17th, and 18th centuries. The American colonies progressed from marginally successful colonial economies to a small, independent farming economy, which in 1776 became the United States of America. In a little more than 200 years the United States grew to a huge, integrated, industrialized economy that makes up over a quarter of the world economy. The main reasons our success is a large unified market, a supportive political-legal system, large areas of highly productive farmlands, huge supply of natural resource, an entrepreneurial spirit and commitment to investing in material and human capital. The economy has maintained high wages, attracting immigrants by the millions from all over the world. In the early years of American history, political leaders were reluctant to involve the government too heavily in the private sector. This attitude started to change during the latter part if the 19th century (Faulkner, 1951). By the turn of the century, a middle class had developed these people, known as Progressives, favored government regulation of business practices to ensure competition and free enterprise. In 1890, congress passed the Sherman Antitrust Act, which prevents large firms from controlling a single industry. This law was not enforced until the early 1900 and again in the 1920, when President Roosevelt and President Wilson, who were sympathetic to the Progressive points of view, came to power. Many of todays regulatory agencies were created during these years (Faulkner, 1951). In 1912 when Wilson became president he implemented a series of progressive policies, and in 1913 the 16th amendment was ratified and the income tax was instituted (American Heritage, 2008). The following years, known as the roaring twenties, the Secretary of the Treasury Andrew Mellon raised the tariff, cut other taxes, and used the large money surplus to reduce the federal debt by about 1/3 from 1920 to 1930. The rapid growth of the automobile industry stimulated industries such as oil, glass and road construction. However, in 1929, the stock market crashed and banks began to fail (Soule, 1989). The Federal Reserve did not cause the crash but made no effort to help the banks. The money supply fell by 1/3 and it was hard to get a loan. By 1932, the unemployment rate was nearly 24% (Mitchell, 1947). World War II helped pull us out of the Depression and between the years of 1941 through 1945, the War Production Board coordinated the nations productive capabilities so we could build up our military equipment. They converted consumer product plants to build military products such as tanks, planes and ammunition (Vatter, 1998).
The period from the end of World War II and the early 1970s was a golden era of American capitalism. The Employment Act of 1946, established to provide objective economic analysis and advice on the development and implementation