Economic Journal: Current Microeconomic Events Essay (Article)

#1:The article: “Judging Stimulus by job data Reveals success” by David Leonhardt, was published on February 16, 2010 on nytimes.com. The article starts with a hypothetical introduction, where the writer engages the reader by telling him/her to assume that the stimulus signed in 2009 was large enough to impact the job market or even money proposed in the stimulus package was spent fast enough to make a rapid effect on the economy.

The article then explains that what would have happened in such a case was still happening in the current economic situation, because after all, the hypothesis is not imaginary but a description of the real stimulus bills as passed by congress and signed by the president.

The article explains that the stimulus package targets creating 2.5 million jobs, and has so far managed to somewhere between 1.6 to 1.8 million jobs.

Why then are Americans not satisfied with the stimulus? Leonhardt states that liberals think that the stimulus package would have had a greater impact if it was bigger; the republicans simply dislike the entire package “because it’s a democratic program”; the Obama administration has hurt the bill through making “too rosy an economic forecast” thus raising too many expectations among the American people (9).

Despite the criticisms, Leonhardt notes that the impact of the $787 billion stimulus package on the economy cannot be understated (10). Money from the stimulus has kept the public service employees (healthcare workers, teachers, firefighters and the police officers) in employment. It also stabilized corporate spending, and indirectly prevented consumer spending from plunging further. More to this, there is no denying that the billion of dollars spent on jobless benefits, food stamps and tax cuts have benefited the American populace.

#2: The article: “House adopts $15 billion plan to spur Job Creation” by Carl Hulse was published on March 4, 2010 on nytimes.com. According to the writer, (Hulse 1) the adoption of the $15 billion measure is a reaction by Congress to the continued pressures created in the country’s economy by the increasing job losses.

The measure was adopted on a 217 to 201 party line vote with majority supporting votes coming from democrats. Out of the 172 Republicans who voted, only 6 supported the bill. The Democrats vote was also split with 35 democrats opposing the measure on grounds that “it was too limited and hence could not spur employment and job creation as intended” (Hulse 4).

The centerpiece of the measure according to Hulse, is the exemption of the 6.2 % payroll tax to all businesses that hire people who have been jobless for more than 60 days. More to this, the measure has a $1,000 incentive on tax credit for employers who hire during this period and keeps the employees on the job for a year or more (10).

Though mixed reactions were registered, reactions towards the bill especially by lawmakers who perceive it as a break to businesses rather than a measure that would create more jobs, the dire unemployment situation in the market have put the lawmakers in a tough position where they are willing to try anything that works just to put as many Americans back to the job market. It is estimated that the measure will allow employers across the country to hire at least 300,000 more people.

It remains to be seen whether the measure will indeed stimulate economic activity, thus creating the opportunities for new employees in business, and most importantly, preventing more job losses. Although one gets the impression that lawmakers have no idea what is really good for the job market right now (explained by the huge opposition from the republicans), the measure if adopted could indeed bolster help the unemployment problem, albeit to some degree.

#3: The opinion article: ‘How to Watch the Banks’ by Henry M. Paulson Jr. was published in the New York Times on February 15, 2010. The articles revolves around the “too big to fail” concept and the proposals from government and other opinion makers towards ending the systemic risks that financial institutions considered ‘too big to fail’ pose to the economy.

Paulson argues that although the economic problems that be-deviled the economy in 2008 are over, a repeat of the same is bound to recur in future and hence people need to come up with a solution of the too-big-to-fail sooner.

His suggestion is that “congress must pass a financial regulatory reform bill now because further delays are just creating uncertainties in the market and undermining financial institution’s ability to lend to business hence curtailing recovery” (Paulson a27).

The article suggests that lawmakers should put the necessary laws in place in order to ensure that in future taxpayers do not have to pay for the management shortcomings and the unnecessary risk-taking that big financial institutions take up on the knowledge that they government considers them so important to the economy and hence would not allow them to fail.

According to Paulson, the proposal by the government “to bar big banks from trading driven by other than customer-related activity” would no doubt have failed to prevent failure by big financial institutions such as Lehman Brothers, Freddie Mac, Fannie Mae, Wachovia, Washington Mutual and AIG (a27).

This means that the same economic pressure experienced when the financial institutions would still have occurred. Accordingly, what is needed according to Paulson is a regulatory authority, which should monitor and restrain activities that would destabilize financial institutions that pose a systemic risk to the economy (a27).

More to this, the lawmakers should put in place laws that allow banks to fail, albeit honorably. According to Paulson, this can be done by having a resolution authority that oversees orderly liquidation of failing financial institutions in order to reduce their impact on the greater economy.

#4: The story: “Aging Boomer face Stark economics” was published by MSNBC courtesy of CNBC TV on MSNBC.MSn.com on March 4, 2010. The story addresses the plight of the aging baby boomers that are now in their fifties and facing the reality of retirement with each passing day.

In retirement, the rising costs of living means that their retirement packages cannot sustain descent lifestyles and often time, they have to start considering going back to the jo0b market. Still, this is challenging especially considering that the job market is flooded with younger, vibrant and more technological savvy younger people.

In addition, there is the issue age-related health complication, which not only means that the aging baby boomers have to spend more money on healthcare, but also jeopardizes their return to the job market. According to the MSNBC article, even where the aging baby boomers have not hit retirement age yet, they are more likely to be laid off. Luckily when such an event happens, they are given a severance pay, which helps cope with the dismissal from gainful employment.

MSNBC however notes that most lack proper planning skills and end up wasting the money without having any other means to replenish their savings. As a result of their dwindling fortunes, a majority of the aging baby boomers who are either retired or laid off from work have rely on the government for the provision of basic healthcare and even food.

According to the Bureau of Labor Statistics (cited by MSNBC), the country has an excess of 4 million unemployed baby boomers. Most have already hit the 65 retirement age mark and hence stand a very minimal chance of gaining employment. As a result, they are not only a worried lot, but a strain to the entire economy.

According to Ferguson (cited by MSNBC), who is a financial historian in Harvard, “the baby boomers have set the country towards a massive financial crisis, and its only going to get worse as more retire”. It is estimated that their numbers and hence their dependency ratio will rise from the current 42 million to 72 million when all of them retire.

#5: The story: “banks to big to fail have grown even bigger: behemoths born out of the bailout reduce consumer choice, tempt corporate moral hazard” was written by David Cho and published in the Washington post on August29, 2009. Cho’s story is motivated by the federal regulators decision in the wake of the recession that directed billions of dollars into financial institutions that were at the risk of failing, and consequently ruining or disrupting the financial system.

Citing statistics from the Federal Reserve Bank of Dallas, Cho gives the example of Wells Fargo which has since acquired Wachovia and hence increased its combined assets to 43 percent more, JP Morgan Chase, which acquired Washington Mutual and Bears Sterns and as a result increased it assets base to an additional 51 % and the Bank of America, which bought of Merrill Lynch with the help of the government and consequently increased her assets with 138 percent.

As a consequence of this acquisitions by financial institutions that were big enough even before the acquisitions, Cho notes that the complexity of size and interconnectedness in the financial institutions is becoming even worse (1). As a result, consumers are faced with fewer financial service choices, and these banks will now than ever be confident about government’s banking if they ever face dire circumstances as was the case in 2007-2009 period.

The latter is referred to as ‘a moral hazard”, whereby, bigger financial institutions borrow cheaply than the medium-or small-scaled counterparts, and are even able to engage in riskier financial practices on the knowledge that the government would always bail them out in the eventuality that a need for financial support occurs.

Overall, this story has laid bare the facts that addressing the problems posed by the big banks and financial institutions lacks in political will as well as strategy. Worse still, smaller financial institutions are suffering under the unfair competition posed by the big banks especially because creditors prefer the bigger banks in view of the “taxpayer” guarantee.

#6: The article: “As college costs rise, loans become harder to get” was written by David Cho and published in the Washington post on December 28, 2009. The article is among a series of other articles bringing to the fore the consequences of the financial crises that hit the world financial markets in the 2007-2009 period.

According to Cho, “the upheaval in the financial markets, did not only give parents fewer choices in funding their children’s education, but also meant that students could not access easy credit as was the case five years earlier” (1).

Worse still, the credit options available for students are costlier and bound with rigorous standards, which limit the availability of the same to many students. In the midst of all the uncertainties, most students were left with only one source of financial hope; federal backed loans. The loan from the government is barely enough for most students especially considering that there is a $5,500 annual limit.

The situation is further worsened by the rising college expenses, which are passed to the students through increased tuition fees. Cho notes that consequences of this include students from middle and low-economic backgrounds compromising on their education, an action which would affect their career choices after graduation (1).

The biggest concern among educators is that students who cannot afford the rising costs in college fees will be forced to stay out of college all together, or colleges will have to compromise the quality of the programs offered in order to lessen the costs and therefore admit more students.

The question that is not yet resolved , even with the end of the recession and some return of normalcy in the financial markets is, “will colleges sacrifice the quality of education, thereby laying more on a student’s ability to pay rather than talent and ability to learn?” If this will be the case, one can only expect that the country will have sacrificed some of its best talent based on their inability to raise college fees and as a result, the country could be less competitive in future.

#7: The Article: “In Shift, Wall Street Goes to Washington” was written by David Cho, Tomoeh M. Tse and Steven Mufson and published in the Washington Post on September 13, 2009.

The article is a description of the new type of financial governance borne by the government’s willingness to bailout Wall Street in the midst of the just ended financial crises. According to the writers, “ the government is no longer acting as the referee and watching from the sidelines, but has now become a fully-pledge player in the financial markets” (1).

The new Wall Street-government relationship is an initiative from both ends; Wall Street is increasingly looking south for purposes of forging business strategies, cleave to federal policies and get new talent, while government through the treasury and the Federal Reserve is closely watching its investments in bonds and the rejuvenated financial markets, which it helped raise by spending billions of taxpayers money on (Cho et al 1).

But does this mean that the government is really becoming an active player in the financial markets? Well, Cho et al state that the government is just safer playing its traditional roles of regulating the financial markets, encouraging public spending and coming up with viable monetary policies. As such, they see a situation where government’s participation in the financial markets will fade as the economy grows healthier.

The new found alliance between government and Wall Street does not mean that the government has given up on finding an alternative to the bailouts. Cho et al notes that “the Obama administration is still determined to overhaul the regulation of markets and firms through measures that would alter the activities that such firms engage in” (2).

More to this, the government is still considering different options on how best to close such financial institutions in case they face financial difficulties in future. I however get the impression that the continued relations between Wall Street and Washington will only give the financial institutions room to lobby federal officials thus complicating the financial-government relations.

#8: The article: “Mortgage Market Bound by Major US role” was written by Zachary Goldfarb and Dina Elbogdady and published in the Washington Post on September 7, 2009.

The article describes how the government has taken up mortgage financiers Fannie Mae and Freddie Mac and consequently putting in place stringent measures for people who are considering taking up mortgages. According to Goldfarb & Elbogdady, the government’s action of taking control of Freddie Mac and Fannie Mae means that it (government) is now the sole and “lender of consequence” in the entire market (1).

The advantage to this action by the government is first, the mortgage sector was shielded from total collapse, and second, people are still able to get mortgages through a 90 percent tax-payer guarantee. However, the action has its downside, which includes that many people are being denied mortgages whether genuinely or illegitimately. Still, Goldfarb & Elbogdady observes that the government is still giving out loans which have a significant chance of defaulting (2).

This is especially so because delinquencies are on the increase and the federal Housing Administration is increasingly registering losses. Goldfarb & Elbogdady notes that there is a quiet agreement amongst policy makers that the running of the mortgage industry needs to reverted back to the private sector (1).

However, there is still no ideal solution on how this can be done without upsetting the sector possibly leading to its collapse. A viable solution would be to give the reigns of power to the Freddie Mac and Fannie Mae, and lay down regulatory reforms. Still, it’s noteworthy that the government involvement in the Mortgage sector does not end with Freddie and Fannie.

The Federal Reserve has been purchasing mortgages in the market with a goal of owning mortgages worth $1.25 trillion. While this has flooded the sector with money thus pushing the interests rates down, it is clear that the government’s presence will continue begin felt in the property market a while longer. The jury on whether this is a prudent undertaking by the government is out in the open.

#9: The article: “What about Micro-economics?” was written by Rober Crandall and Cliffor Winston and Published in the Forbes Magazine online edition on October 05, 2009. The article proposes that nature of prevailing economic situation (recession) at that time was as a result of both macroeconomic and microeconomic failings. In the article, Crandall and Winston states that Microeconomics held a solution to the recession than Macroeconomics did.

But were they right in their allegation? Well, Macroeconomics is “the study of the determining factors that affect employment and output in a given market” while, Microeconomics is “the study of how firms and consumers make decisions, and how government address conditions that affect the respective decision” (Crandall & Winston 1).

The deregulation of sectors such as telecommunications, transport, cable TV markets and crude oil all played a critical role in the recession and squarely falls under the microeconomic definition. As such, this journal surmises that the problem lay in government regulatory bodies and hence microeconomics hence rendering the allegation by Crandal and Winston true to some degree (1).

Crandall & Winston further state that no amount of government can completely cure the depression unless there is willingness and support from the consumers and the individual consumer firms (1). To this end, the role of government initiative in terms of recovery packages and relief programs would give the market leverage for survival, but the true solution to the recession would have to come from the consumers and the firms that deal directly with the consumer market.

From this article, it is clear that Microeconomics just as macroeconomics matter in any healthy economy. However, it is evident that in a free market economy such as the United States, the government can only do so much. At best, it can only offer regulation and chances for firms and the entire market to self-correct once faced with economic hardships.

#10: The article: “The Workers of the Future: are millennials better at navigating the current job market?” was written by Nancy Cook and published in the Newsweek web on February 26, 2010.

The article documents the flexibility experienced in many young people and their attitudes towards work and the recession. According to Cook, the young generation of workers has a completely different attitude towards work. “They are smart, tech savvy, entitles, bold and ready to take risks more than have ever been the case in the job market” (1).

Consequently, they hop from one project to another, rarely settle on the traditional eight-to-five jobs, and care less about climbing the corporate ladder. Better still, they pay their own health insurance and care less about the safety nets offered by corporate employers.

Cook observes that the older generation could learn a thing or two from the younger generation especially because the recession just confirmed that Job security is neither a certainty nor a guarantee (2). More good news for the young generation is that more jobs generated in the economy today involve the use of technology, education and computers.

This means that they are able to compete well with the baby boomers in terms of creativity, entrepreneurial skills and more importantly, technologically. More to this, the young people are able to observe and learn. They are quick to invest with probable good returns and ready to leave as soon as the first signs of trouble appear (Cook 3).

This means that they stand a minimal chance of facing financial ruin. Since the young people have fewer responsibilities than their older counterparts, they are able to navigate the job environment more easily. In addition, they are more vibrant and flexible meaning employers are more likely to prefer them over the baby boomers.

Better still, they have better education and can always count of the parental support whenever the need arises. If their creativity and flexibility is anything to go by, I conclude that a big percentage of the millennials will find viable economic solutions for responsibilities that will face them in future.

Works Cited

Cho, David, Ts e, Tomoeh & Mufson, Steven. “In Shift, Wall Street Goes to Washington.” Washington Post. 2009. Web.

Cho, David. “As college costs rise, loans become harder to get.” Washington Post. 2009.Web.

Cho, David. “Banks to big to fail have grown even bigger: behemoths born out of the bailout reduce consumer choice, tempt corporate moral hazard.” Washington Post. 2009. Web.

CNBC TV. “Aging Baby Boomers face Stark economic: declining finances, rising health care costs threaten a generation.” MSNBC Business. 2010. Web.

Cook, Nancy. “The Workers of the Future: are millennials better at navigating the current job market?” Newsweek web. 2010. Web.

Crandall, Robert & Winston, Clifford. “What about Microeconomics? Not all studies have failed us.” Forbes. 2009. Web.

Goldfarb, Zachary & Elbogdady, Dina. “Mortgage Market Bound by Major US role: Classes of Borrowers cannot find loans as publicly backed doubts mount.” Washington Post. 2009. Web.

Hulse, Carl. “House adopts $15 billio0n plan to spur Job Creation.” New York Times. 2010. Web.

Leonhardt, David. “Judging Stimulus by job data reveals success.” New York Times. 2010. Web.

Paulson, Henry. How to Watch the Banks. New York Times op-ed. 2010. Web.