Financial Planning: How Much Per (Re)Session?
We have seen a huge rise in prices over the past year, leaving many Americans looking down in the mouth, but more importantly, down in the wallet. Millions across the nation are wondering whether or not we are facing another Great Depression, or if we are simply tightening our budgets. Does another recession look likely? Song Gao, assistant professor of economics, sheds light on this financial frenzy.
Question
What happens in a recession?
Answer
A recession can be defined as a profound economic slow-down, meaning a long-term economic meltdown. Output will decrease and normally price levels will drop, but in this case, we are looking at price levels rising, so that is a concern.
Q
What ultimately causes a recession?
A
There are many different causes. In this case, I have a reservation over whether or not we can call this a recession or a slowdown. Beginning in June or July of 2007, we saw the cause come from the sub-prime mortgage crisis. This led more people to be reserved about their income, and consumption came down. So this would have to be the main cause.
Q
What part does the media play in a recession?
A
This time is especially interesting, compared to the end of the ’80s and ’90s. Information travels much faster now. People are getting more concerned with their economic well being now, so the media has accelerated this so-called recession. As part of the policy-making process, I think that the government may also pay a lot of attention to what the media may say.
Q
Is the United States on its way to a recession?
A
No. The US economy has been doing relatively well. What we are seeing now is a slow-down. We are still growing, but the growth rate has been slowing. As long as we see a continuous growth rate, we are doing our jobs. In addition, the unemployment rate is actually fairly healthy right now. In Europe, we are looking at 8 or 9 percent, and the United States only has 4.9 percent. It has decreased .1 percent since December 2007.
Q
What is one way for us to avoid a recession?
A
It’s hard. If you look at all the economic data, the output levels keep increasing all the time, but if you look at the end of the ’80s or ’90s, there have always been slow-downs, we call this the business cycle – you cannot avoid that. But how do you respond to this? You can’t, it’s just a cycle. The last 5 years we saw good economic growth, and we should have seen this coming, because we really took advantage of the good economic prices. So when we see good economic growth, we are actually creating economic pressure for the future.
- Christopher Bender '10, student reporter