Tuesday, March 31, 2009

Recession and Depression

So, the other day, I was reading my AP World History textbook and the following excerpt came up: "In 1929 the normalcy of the twenties fell apart. Stocks plummeted; businesses went bankrupt; prices fell; factories closed; and workers were laid off." Um, HELLO? I don't know about you but to me, doesn't that sound awfully familiar? It's like deja-vu all over again. The rest of the section in my book went on about the Great Depression...which got me thinking...is America going into another depression?

Or more generally, what's the difference between a depression and a recession? One of my oh-so eloquent friends described the difference as so: A recession is like not being able to buy your fave Coach shoes...but a depression is like not even being able to buy Payless shoes! Yes, I have such great friends now don't I ;-).
In more technical terms? Well there are a multitude of definitions, so there isn't really a perfect right answer. Most economists state that a depression is a severe recession that is marked with high levels of unemployment, a decrease in the GDP, and a stock market crash. But then again, different people have different definitions.

An old economists joke to add some humor (or not) to your day: A recession is when your neighbor loses his/her job. A depression is when you lose your job!

Question of the Post:
Is this the start of a depression?

Works Cited
Bulliet, Richard, Pamela Crossley, Daniel Headrick, Steven Hirsch, and Lyman Johnson. The Earth and Its Peoples. 3rd ed. Boston: Houghton Mifflin Company, 2005.

Tuesday, March 17, 2009

Madoff as an Icon of Greed?

We see his face plastered on every news channel and his name constantly mentioned in everyday conversation. Madoff this, Madoff that, Madoff, Madoff, Madoff. He organized one of the largest investment scandals of all time. He has been compared to Ponzi, a notorious scam artist from the early 1900s. Madoff, a former chairman of NASDAQ (a highly prestigious position), took roughly 65 billion dollars from investors and now faces 150 years in jail (even though he is already 70).

So, this a failure of the checks and balances system and lack of regulation in companies by the government. Not to mention the product of greed. After all, he is human, just like us all (including investors). However, this is not a failure of economic models.

But really, what I wonder is why the most experienced investors in the nation didn't realize what was going on. For example, if you give me $10 and I tell you that it will become over $50 in just a few months, would you buy into it? Wouldn't you think it was all a scam (especially with the weak economy)? Why didn't the top investors (few who also were said to be experienced economists) take the initiative to question the rationale behind the whole thing?

Now you may be wondering how all this relates to you. Well, Madoff was extremely involved in philanthropy for charities and universities, which have greatly suffered as a result of the scandal. If the average cost for an education for one year at a private college is...let's say about $40,000 and we divide how much money was involved in his scheme by the tuition cost, 1,625,000 students would have had full scholarships for one year at a private college. 1,625,000 people. Wow.

Question of the Post: What do you think of the Madoff scandal?

Friday, March 13, 2009

Recession, Recession, and....More Recession!

Recession. Yes, we hear this word constantly in our lives nowadays. We hear this word on the news, at home, everywhere and anywhere. But, what does this word mean?

Well, Merriam-Webster.com defines recession as..."a period of reduced economic activity" (Source: http://www.merriam-webster.com/dictionary/recession).
Sure, sure, but that's just "dictionary language." What about in everyday-when-I'm-living-my-normal-life language? Well, for some teenagers, recession can mean that your parents refusing to buy you a shiny new Ipod Shuffle or people's mood being ruined upon seeing their stocks plummet. Recession is ubiquitous and affects (almost) all of us.

Let's assess a major effect of the recession which can even impact our students' life, the credit crunch. Simply stated, a credit crunch occurs when it is harder to obtain a loan from the bank. For example, when we head off to college, it will be more difficult to get a loan because of stricter requirements and higher interest rates. Hopefully, President Obama has an effective solution for the student loans in the future.

So, the ever probing question is, when will all this end?! Alas, Adam Smith (if he were to be alive right now) probably wouldn't even know. I mean, come on, we're not fortune-tellers. Asking about the end of the recession is like asking a weatherman if its going to rain in five weeks. But, I think the real question is not when the recession will end, but what will end it.

Question of the Post: What do you think will end the recession? Leave a comment to contribute!


Hey everyone! Welcome to Miss Economist's Blog! Here I, a typical high school teenager, talk about my view on the economy today. I am still learning the ropes of economics, just as today's middle(and very)-aged leading economists are still learning too!

When people meet an economist, they immediately ask, "When will America come out of this recession?" However, I do not know the answer to this question...neither do the top economists who write for the Wall Street Journal. Not even my all-knowing dog Penelope (Penny for short) can. I am here to slay the misconception that economics is the "dismal science."

Feel free to contribute to the discussion by commenting! (Any inappropriate comments will not be tolerated)

Once again, welcome!