Remember Barack Obama’s “Stimulus Package”? It seems long ago now, but when it was drafted in 2008 and passed in early 2009, it was meant to help the U.S. economy recover from what was then a relatively new recession. Almost three years later, the recession has gotten very old. Brad Andrew, associate professor of economics, discusses the current American economic situation.
Some are speculating that a “second recession” is looming. In order for there to be a second recession, wouldn’t the first one have to have ended?
The technical definition of a recession is two consecutive quarters of economic contraction. So when the economy starts to grow again, technically that means that the recession has ended, even if unemployment is still high.
What we’re looking at now is what’s called a double dip. It seemed like we were about to get out of it, but now the question is whether we’ll go into another recession.
What’s keeping the economy from fully recovering after so long a recession?
The problem is that we don’t know. I can only give a few most likely possible explanations. The first is uncertainty, greater uncertainty than we’ve seen in any recent recession. Companies are unwilling to hire, and that’s keeping spending down.
Another possible explanation is that we’re going through a banking transition, with higher lending standards. With higher lending standards, less people are lending money, and therefore there’s less spending.
And another explanation is that Americans have a lot of debt built up. A lot of people who were spending money five or ten years ago, are now paying down debts rather than spending money like they were then.
So those are just a few possible explanations. They may all be correct. They may all be wrong. I don’t know which one is the main explanation. Economists try to look at one core factor behind a recession. Truth be told there isn’t consensus on which one that is.
Why have some companies been able to do so well recently, while others are still failing?
It’s very difficult to answer that question in a general way. It’s going to be specific to each market. Many companies that hadn’t been spending for the past several years may now need to upgrade. Overall many companies are quite profitable. The thing is they made their profits by laying people off. They have higher profits but they way they’ve increased is by cutting spending, mostly by laying off workers.
What do you think needs to be done to get the economy back on its feet?
There really isn’t much available right now to improve the economy, but I think the most effective way would basically be tax cuts for the middle and working class. That’s something that’s immediate. People immediately see it in their paychecks so they will immediately begin to spend more. Another solution would be a third round of quantitative easing, which basically means increasing the money supply.
Kelsey Molseed ’14, Juniata online reporter