Tag Archives: economy

The Recession and the Vanishing Middle Class

Three years after the 2008 financial crisis, gloom still lingers in the form of perennially dispiriting unemployment numbers. The recent uplifting news that unemployment dropped from 9% to 8.7% last month may actually be explained by exasperated workers abandoning their search altogether (unemployment estimates count only those actively seeking work).

An optimist might describe such hardships as temporary evils caused by a precipitous drop in home prices, the freezing of credit markets and a general loss of confidence among global financial institutions. Others, however, are not so sanguine.

In September’s issue of The Atlantic, features editor Don Peck observes, “One of the most salient features of severe downturns is that they tend to accelerate deep economic shifts that are already under way.” He further argues in an essay adapted from his recent book, Pinched: How the Great Recession Has Narrowed Our Future & What We Can Do About It, that our immediate difficulties are merely the fruiting of some long-term negative trends.

“Arguably the most important economic trend in the United States over the past couple of generations has been the ever more distinct sorting of Americans into winners and losers, and the slow hollowing out of the middle class,” says Peck.

He is hardly alone in this belief. Many who have studied the growing disparity of job opportunities in the U.S. find the gradual opening of global labor markets may be to blame for the corrosion of middle class job security. Michael Spence, a Nobel laureate and former dean of Stanford Graduate School of Business, has conducted extensive research into the area of globalization and its effects on employment, finding that free trade arguments which hold up productivity gains largely ignore its devastating impact upon middle class employment.

Writing in Foreign Affairs last March, Spence argued that since 1990, job gains in the U.S. have been concentrated within the non-tradable sectors—those which cannot be outsourced (healthcare, retail).

Conversely, the few tradable sector jobs that have withstood the allure of cheap foreign labor are confined to high value-added jobs in which Americans still retain a comparative advantage (graphic design, finance). Unfortunately, these jobs are unavailable to all but the most highly-skilled, highly-educated subset of Americans.

Of course, most Americans—especially those in the middle class—are intuitively familiar with these trends. Few of those who have lost work to low-wage workers overseas will hesitate to illustrate the role China has played in their misfortune.

Nevertheless, many Americans still cling to ideology when seeking to explain growing disparities of wealth. Free-market purists will scramble for explanations for why free trade cannot be the culprit. As the epitome of laissez-faire capitalism, free trade is cited as a way to increase productivity. The problem is those increases are shared by a shrinking portion of the population.

To be sure, our current economic condition is due to the successive implosions of highly overleveraged, unregulated financial institutions. But to focus on this while ignoring the ever-widening hole opening up beneath our struggling middle class would erase any hope for economic recovery or any sense of social and economic justice.

Buoy Economy; Shop “Smaller”

Last week in the Foghorn, we featured undergraduate Caitlin Dally’s call for students to move their money from large national and multinational banks to community banks. The idea was to responsibly stimulate and repair local and underserved economies by extending to them “access to credit, equity, capital, and basic banking products that these communities would otherwise lack.”
We want to embrace a broader version of that scale down mindset by generalizing that student’s suggestion: make an investment in local and independent retail operations whenever possible. In other words, shop small and responsibly.
In the City, it isn’t hard to shop locally or independently. A quick visit to Haight Street, Clement Street, or Mission Street puts one in the reach of many local (and eccentric)vendors with strong community ties and, often, a refreshing sense of social awareness.
But even in our City, we’ll inevitably, and maybe without thinking, bypass a smaller operation for the large scale and likely heavily advertised name. And, arguably, there’s nothing wrong with that; after all, large banks, restaurant chains, retail chains and supermarkets fulfill a consumer demand. Realize, though, that these smaller establishments you have chosen to pass on have lost your business.
At USF, the university’s commitment to the principle of social responsibility is reflected in the use of vendors who tend to be small, locally based or who themselves are known to have an eye for social responsibility.
Have you ever had to put a poster idea through the Graphics Center? Orders for prints and copies go through Copy Mill, an operation based in the City which has been certified by San Francisco’s Human Rights Commission. Should you be reading this on newsprint, the page you’re holding rolled off the Hayward presses at Folger Graphics, a family-owned business across the bay.
As an individual, the chances to make a direct and immediate (if small) community investment are more numerous than one would think. Within walking distance of campus, there are three different neighborhood hardware stores; one might first consider patronizing these stores for a can of paint, a trowel, or a roll of duct tape before trekking to San Francisco’s very own Lowe’s Home Improvement Warehouse for those same items. Likewise, a Sunday visit to the Civic Center farmers market or to a Clement Street greengrocer might yield a more satisfying inventory of fruits and vegetables than if you were to make your weekly rounds at a chain supermarket.
If you’re a student whose hometown is far and away, where small stores and comfortable proximity to neighborhood shopping districts may not be the norm, make the extra effort to skip the trip to Wal-Mart or Home Depot and put your money to work for local businesses. In these areas, independent business will definitely appreciate your patronage; you’ll gain the satisfaction of making a responsible investment and the likely bonus of friendly, personalized service, an area where many large-scale operations fall short.
Clear or easy financial decisions are very hard to come by when the economic climate bears down on nearly everyone. But going off the beaten retail path, actively seeking small and responsible businesses to support, and making a local, perhaps slightly more expensive purchase, even every once in a while.

Economy Spikes 2010-11 Tuition Rates: Administration balances setbacks to yield a low 2.9% increase

Undergraduates are soon to face a tuition increase for the 2010-11 academic year, which the university has deemed necessary.
Last December, the university presented their pricing strategy to the Board of Trustees for the upcoming fiscal year. The Board approved the 2 percent increase in residence hall rates, 2.6 percent increase in meal plan rates, and a tuition increase of 2.9 percent.
According to the Office of the Provost, USF’s tuition increase is among the lowest percentages of major universities. “We’ve been very careful in trying to look at operational efficiencies by reorganizing and trying to find ways to lower our operational costs,” said Salvador Aceves, vice provost for Planning, Budget and Review.

An increase in the number of students enrolled, amplified by the nation’s economic downturn, has prompted university officials to implement several structural adjustments that enhance faculty and staff productivity and continue the high-quality education for students.

“General concerns about access and affordability which fit into the larger context of an increase are what we are trying to balance,” said Aceves. “We as an institution and buyer of services have to factor in certain increases year after year.”

Aceves said there are three major factors that influenced a tuition increase for fall 2011.

The first includes the rising costs of health care benefits. Aceves said a task force was appointed to assemble a health care package that is attractive, but at a lower cost. The university seeks to become a smarter consumer in spite of rapidly increasing costs.

The second factor is the school’s financial aid offerings. The fall semester will experience a significant growth in qualifying university scholars, who are students receiving scholarships for their academic aptitude in high school. USF must set aside more scholarship money for the incoming class.

However, the university will face a financial drop in the endowment, and it will greatly impact the money geared toward student scholarships. The endowment is substantially lower than schools such as Santa Clara and Pepperdine.
Despite ongoing efforts to work with the city and other private organizations who may be interested in donating money, USF continues to award less aid from endowment earnings.

Aceves said the third factor has been the postponed maintenance in university facilities. The maintenance of sites that have undergone major upgrades, like the University Center, will be funded through the school’s tuition increase.

The Office of the Provost also had to deal with the rising costs of services that the university purchases. Services include the use of facilities on campus and several computer databases used by the library.

However, Aceves said one other leading reason for the tuition increase is the need to maintain competitive employee salaries. By doing so, the university may have an edge in attracting and maintaining their employee base.

Like other universities, USF has had to deal with financing competing interests, including collective bargaining agreements with several employee groups at the university.

One student praised the university’s insistence to make faculty salaries competitive, and said “the student essentially becomes a better product due to the competitive nature of the faculty salary.” Having family members graduate from USF in the past, they have seen tuition prices rise and found a tuition increase to be a bit excessive.

Nursing major Jessica Holtkamp said an increase in loans and scholarship funds will help students deal with the rise in cost, but doesn’t see the decision as a positive. “Raising the tuition will make it just that much harder for students to afford to go to this school.”

Since USF is 95 percent plus dependent on tuition, it places a heavy burden on students to cover the cost. As students submit their FAFSA for next year, officials must adjust their aid distribution based on need.

The decision to increase the tuition of undergraduate programs is evaluated at an institutional level. Aceves said when it comes to the graduate level, the university relies very strongly on the recommendations of each school, as many of these programs often operate in their own sub-market.

Aceves said, “At the end of the day, we want to make sure we are assigning those costs specifically to that segment of students who are the direct beneficiaries.”

Editor-in-Chief: Heather Spellacy

Chief Copy-Editor: Natalie Cappetta

News Editor: Ericka Montes

Letter to the Editor: In Response to “Recession is Over but Unemployment is Reality”

Dear Foghorn Staff,

I read the Foghorn on a regular basis but have been disappointed by the uninformed and misguided economic analysis presented by Paul Panasiuk on the U.S. economy and political system.

In his latest article on the U.S. recession he argues the government is printing money, that this is causing a depreciation of the dollar, and that the government spends money on failing programs and wars. Furthermore, he compares the US to Zimbabwe, Iceland, the Weimar Republic and Argentina.  He predicts that the US economy will collapse and that there will be a meltdown.  Furthermore, Mr. Panasiuk argues that millions have lost jobs and that Americans continue to lose jobs.

First, Mr. Panasiuk’s criticisms regarding money supply are misguided because they are not based on reality.  The U.S. government is elected by the people and the U.S. has an independent central bank that sets monetary policy independent from the rest of the government.  The Federal Reserve Chairman Ben Bernanke is highly qualified in how to deal with financial crises, recessions, and using monetary policy to get the economy back on track.  The same cannot be said of Zimbabwe, the Weimar Republic, Argentina or Iceland.

Second, Mr. Panasiuk does not consider alternative reasons for the loss of American jobs.  Indeed, many Americans have lost their jobs, but after the recession has cleared there will be new jobs, which may require an updated skill set.  Do we really want to keep autoworkers employed making SUVs that nobody wants to buy?  Instead we need to build fuel efficient cars, invest in biotechnology, and be innovative and a global leader in high technology.  Most of the jobs that have been lost have been in low-skilled labor, which has been negatively impacted by the development of new technology that replace these workers, the rise in the minimum wage, and the comparative advantage offered by low skilled labor in foreign countries.  A recession offers companies to restructure and become more efficient thereby reaping greater profits in the future.

Third, Mr. Panasiuk does not offer any alternative solution for current U.S. government policy.  Would he rather that the Federal Reserve not print money, thereby keeping interest rates high, making it more difficult for businesses to invest, and our exports expensive to foreign consumers?  Would he rather have a tight fiscal policy and thereby not stimulate the economy through the business cycle?  I am unclear as to what he would want the future to hold. It is easy to criticize and complain about wars, the economy, and politicians.  But unless you can offer better solutions then I am afraid that these criticisms do not amount to much at all.

Sincerely,

Eric Fischer

Graduate Student,

Department of Economics

Recession is Over But Unemployment is Reality

This past week, media outlets from the Wall Street Journal to Yahoo News blared their trumpets and shouted ‘the recession is over!’ as important economic indicators came in with better than expected numbers.  The stock market has steadily risen over the past few months, but we have forgotten what really matters. Millions have lost jobs and hundreds of thousands of Americans continue to lose jobs each month.  The 9.8 percent and rising unemployment rate does not seem to be a concern as of late.  What about the exponential increase in our money supply, the depreciation of the greenback, and the national debt at over 56 trillion dollars? What about our congressmen and women who continue to borrow billions a day to pay for failing federal programs, wars, and drive consumer spending?

As of today, each person in the United States owes $39,000 and federal spending increases by about $3.79 billion dollars a day.  Democrats and Republicans alike truly believe that they can continue to spend money without dire consequences.  People who stand behind the stimulus package totaling hundreds of billions of dollars clearly do not understand what drives real economic growth.  A society that spends money on credit without producing and saving is doomed to fail.  Countries like China, Taiwan, Singapore, and South Korea do exactly the opposite of what we are doing and produce goods, which benefit immensely from our irresponsible and nonsensical policies. Our society will soon feel the pain.

An example of this pan can be seen in the happenings in Zimbabwe, Iceland, the Weimar Republic, and Argentina.  Those in control of the central bank thought it was economically feasible to grow the money supply by monstrous amounts to pay for their bureaucracy and debts.  Little did they know, those countries woke up to a worthless currency, skyrocketing unemployment rates, and great pain among their citizens.  In the 1970’s the United States money supply was raised by about 14 percent. The U.S. saw double-digit inflation and interest rates were increased to almost 20% to stop it.  Our money supply in the past few years has increased by an incredible 120%.  The United States has a very big problem and we will likely fall victim to its wrath.

So what about a few years from now when the dollar has collapsed and hyperinflation kicks in, our unemployment rate is through the roof, and the Chinese stop supplying us with goods because our economy and currency are completely worthless? The Costco and Safeway shelves will be empty and our flexi will be of no value. An overall substantial decline in standard of living is not too farfetched.  Yes, the United States has a tendency to pull through tough times, as we did during the Great Depression, World War II, and other periods of hardship.  However, as a society we are not completely immune to the possibility of a societal meltdown.

(Sources – Shadowstats.com, federalreserve.gov, US Treasury reports.)

In Response To: “Is America Becoming Socialized?”

In the editorial “Is America Becoming Socialized?” Lindsay Ziegler argues that the Obama administration is bringing socialism (and therefore inevitable doom) to America. She says that capitalism, “provides the best way of living for all its citizens,” and implies that free universal health care is morally unjust. I could not disagree more. There are a few things I think Ms. Ziegler, and the USF student body, should consider before jumping to this sort of hasty conclusion.

First, how can capitalism be the best way of living when it exploits the middle class and leaves 40 million Americans without health insurance? I absolutely believe in freedom of trade and open market economies, but I also think this country has a moral obligation to provide health care for its citizens. Luckily, both of those ideals can work together. Many countries across the world provide health care AND a free market to their citizens. Canada, Sweden, Germany, France and England, to name a few, are stunning examples of this system at work. Ms. Ziegler says that with universal health care the government can reject funding a citizen’s needed medical procedures. She is incredibly mistaken. Currently, insurance agencies are the ones who reject patients. The insurance business works entirely for profit so each firm can reject as many sick people as possible in order to capitalize on monetary gain. Fortunately, universal health care would give those of us who can’t afford to be denied health care an opportunity to receive the procedures we need. The government couldn’t turn us away, no matter how expensive our procedure may be, because our coverage would be guaranteed. Gee Ms. Ziegler, imagine a nation where its citizens wouldn’t have to pay exorbitant fees for health care!

In implementing universal health care, a few things would have to take place. Yes, some taxes would be raised. The past 8 years of heavy government spending by the Bush administration has left America in an economic melt down and, as a result, we must pull ourselves out. Minor increases in taxes are necessary. We already pay taxes that go to programs like Medicare and much of our health-oriented taxes are currently being poured into the insurance agencies that, in turn, refuse to provide services to many needy Americans. No cancer patient should be turned away from chemotherapy for lack of funds. The system is flawed and some sacrifices must be made in order to fix it. Taking an extra .3% out of my next shopping spree in order to save the lives of hard working Americans is a sacrifice I am willing to make.

In addition to healthcare, Ms. Ziegler also mentions that the alleged socialism Obama’s administration is supporting would compromise American freedoms. She cites specifically the government’s control over the auto industry. Unfortunately your beloved capitalism failed the auto industry this past year. Because unrestrained capitalism results in companies doing absolutely anything to make a big profit, the auto industry began off-shoring jobs because they could pay workers overseas less than workers in America. The disappearance of jobs in America and the stock market crash were incredibly affected by this displacement of employment. The auto industry’s profiteering, as well as the increase in prices of oil, caused company failure. As a result, the nation was faced with two options: either the auto industry could fail and the economy would suffer a devastating blow, or the government could bail them out. The Obama administration chose the bail out, allowing the industry to re-build and capitalism to continue.

After reading Ms. Ziegler’s article I assume that her condemnation of socialism is universal. I suppose, if her argument really is correct, that all socialized programs should be shut down in America. All public education (which is a perfect example of socialism) would have to be disbanded. The police force would have to become a for-profit industry and Medicare and Child Protective Services would disappear. If this truly is the American you want to live in, then by all means continue to generalize and reject all aspects of socialism. But if you think that, maybe, parts of our country are better off being sponsored by the government (i.e. education, the military, etc.) or that “freedom, liberty, and the pursuit of happiness” should be allotted to ALL Americans (not just those who can afford health insurance) then consider being a little more open minded.

Neither exclusive capitalism nor exclusive socialism is an effective way to run a country. American freedoms are something to be proud of and capitalism and socialism have the ability to work together to enhance them. The government does not, and will not, dictate what you buy, why you watch on TV, or whom you vote for. But it should provide education, national defense, and health care. It is in this combination of ideologies that America will continue to flourish.