Over the past few years, the US economy has taken a severe beating leaving millions of Americans struggling to find employment and forcing others to be cautious in their spending habits. As a result of this climate of economic uncertainty, people have been quick to point their fingers at what they perceive as the source of their problems but very few are offering up effective and valid solutions to help solve this problem. In order to wrap our arms around this major issue, we need to first diagnose the issues that created this problem in the first place in order for it to not happen again.
Catalysts and Causes
Oil price spikes in 2008. With prices surging over $100 US/barrel, this sent US consumers and businesses into a state of shock. People almost doubled their expenses at the pump – filling up a SUV that would have normally cost around $40, suddenly pushed $80. While $40 may not seem like much to some people, for others that added up to an extra $160/month which would cut into their groceries, mortgages, savings, and other expenditures. To add to this, the price of transporting goods and resources increased which further impacted consumers. Many politicians argue that the wars in the Middle East as well as some of their governments were to blame for the sharp rise in oil prices, however I firmly believe that the issue had mostly to do with the commodities market spinning out of control and unregulated. At the time, I was actively involved in day-trading ETFcommodities and witnessed the effects first-hand during my trading sessions. In my opinion, this is the catalyst which started the current downward spiral.
Intentional loop-hole in midsize vehicle purchases (tax write-offs) under the Bush administration which caused a rush of business owners to purchase large vehicles, which they in turn ended up paying at the pump during the oil price spikes of 2008. “Ironically”, both President Bush and Vice President Cheney (CEO & Chairman of Halliburton) both had significant ties to the oil industry.
Faulty underwriting/predatory lending of major mortgage lenders. Simply explained, the large lenders and banks in the United States let smaller lenders partially take over mortgages on homeowners that were not creditworthy. When the homeowners couldn’t make payments, smaller lenders got into financial trouble. Some of the major lenders weathered the storm, but a lot of the smaller companies went under.
Faulty credit leading to a worsening situation. Part of the above issue, homeowners that did not have a solid track-record of credit were sold homes, then quite often found themselves unable to pay their mortgages.
Home value depreciation. People’s homes are worth less now as a result of the above. People can’t refinance as a result, and hence they are spending less money in the market.
Bank lending practices. I work with a lot of major real estate developers in my main line of business. One of the most common complaints is that the banks will not lend out money unless a significant amount of cash is put down. They simply don’t want to take risks in this economy. As a result, these developers are not developing new properties which in turn affects people in the construction industry, retailers, etc.
The cost of two separate wars. I’m not here to argue the reasons for going to war or to debate their necessity, but I’m simply pointing out the trillions of dollars spent which have affected taxpayers and other avenues of government spending.
The cost of Homeland Security, something which even Congress is still debating (somehow.)
Large corporate tax breaks. The theory behind this is that if business owners are given significant tax breaks, that this would lead to employment gains. Employment simply didn’t gain during the Bush administration, and a lot of major companies continued to offshore their work and manufacturing processes where labor is cheaper.
Wealthiest American tax breaks. Some people argue that the wealthiest percentage of Americans pay proportionately smaller amounts of income towards taxes and that it’s unfair.
Outsourcing work and accountability. It’s very simple math – it’s cheaper for companies to send their work overseas. Compared to 10 years ago, the Internet has now enabled us to do so more readily and easily. A lot of the money that is being sent overseas feeds other countries economies, but does little to help our own. The money that is sent overseas is spent overseas and doesn’t return. We may in-turn receive cheaper goods, but since there’s less people employed in our own country, very few people are left here that are capable to buy the goods that are imported. Outsourcing has affected numerous areas of customer service and manufacturing and has lead to significant job losses in high-tech fields. The flow of work and money overseas is largely unaccounted for.
In order to stop further erosion, we need to act immediately in tackling the issues listed above.
Commodities should be made unavailable in ETFs (Exchange-Traded Funds.) Trading commodities at one point required special licensing and fees to get into this area of trading. ETFs allowed ordinary people to suddenly enter the once privileged field of commodities, and basically gamble with that portion of the market which has lead to instabilities.
It’s just a bad idea all-around to give breaks to people and corporations on vehicles which are largely inefficient financially and environmentally unfriendly. It only benefits the people controlling the pumps and does more damage to the society as a whole. It was only a temporary solution to a much larger problem that ended up coming back for us. On the other hand, breaks should be given to those who purchase fuel-efficient vehicles. This actually helps stimulate advancement in technologies as well as putting money back into people’s pocket-books (versus just a few.)
Creditworthiness has to be highly regulated. You can’t expect large corporations to regulate themselves, but legalized loan-sharking has to be moderating by an independent organization such as the government.
Faulty credit is part of the above issue.
Home values will only increase if these other issues are addressed.
Banks need to start assuming risks again. While no agency can enforce them to, they can be provided with incentives to do so. I don’t like the idea of providing incentives, but rather addressing the other solutions listed here first and this will eventually follow.
One war in Iraq has largely ended during the Obama administration. This is a huge reduction in government expenditures. If we could somehow reduce troops in Afghanistan, this would further stimulate our economy. At the same time, we still need to be cautious and weigh that our homeland is secure.
The costs of Homeland Security might be one area that we have to live with moving forward. I think there’s valid issues concerning efficiency in Homeland Security which can and should be addressed. Being able to pull resources out of Afghanistan and Iraq should more than support this agency.
To be completely honest, I think large corporate tax breaks is one of the smaller portions of the problems at-hand. I think even if the rates were raised, that would help but it wouldn’t solve all of our current issues.
While I think people can always contribute a larger share to society, I disagree with Warren Buffett in that I think by raising taxes across the wealthiest Americans, it might help a little but it’s still not going to solve our current economic issues. Even among the wealthiest Americans, I think an increase in taxes might only make a small dent. It’s more important to address some of these other issues first and foremost.
I believe that the majority of our current issues stems from unregulated work, technology, and money flowing overseas. Unless a politician or an individual has been directly involved in the process of outsourcing, I think it’s hard to imagine the astronomical amount of money and work that is going towards other countries currently. Part of the issue is regulation and monitoring – there’s simply little in place to see how finances are being transferred. It’s not just large corporations that are doing this, but rather millions of individuals and small businesses which are participating. I have spoken with fellow artists, architects, developers, real estate agents, small game companies, shoe manufacturers, programmers, printers, and publishers – all of whom have sent work to other countries recently in order to stay competitive here in the United States. It’s a really big problem where the focus is less on quality, and more on mediocrity if it means significant savings. For every $20,000 I send to another country (which can be easily done), that’s one person that could have been employed here within our own country. Now multiply my amount to millions of small business owners and ever larger corporations, and that is a big source of our financial drain. I’ve even suffered job loss due to this. If the US government can work out a system which provides better accountability and outsourcing moderation, I firmly believe that this would help solve a lot of our own current issues.
As some of you are aware, I’m not an economist. I’m just a small business owner on the front lines of the housing and construction industry who happens to know technology fairly well. I have spoken with some of the wealthiest and most influential people in this this country on a frequent basis, and have come to my opinions in having many of these first-hand discussions with other business owners. I don’t claim to know it all and perhaps I’m misinformed on some of my views – I would like to be corrected when I’m wrong. An argument in my favor is that even the economists and politicians can’t even agree on how to solve these issues, otherwise we would have already been seeing a marked improvement in employment. The only thing I can try to do is to provide some constructive criticism by pointing people in the right direction and hope that this article sparks further discussion. The issue at-hand is multifaceted – there’s no “one button fix” or solution to these economic issues. At the same time, we can’t always realistically expect something to get better overnight – it generally takes time. However, these issues need to be addressed at some point or another otherwise we risk a worsening or a repeat of this down the road.
https://www.lunarlog.com/wp-content/uploads/lslogo_small_square1-1.jpg100100Cleohttps://www.lunarlog.com/wp-content/uploads/lunarlog-news-logo-218x100.pngCleo2011-09-30 17:28:552011-09-30 17:28:55Fixing the Economy