by Serge Eygenson | Newspapers exaggerate economic downturn.
Recently, widespread fears of an economic recession have swept American society. Fortunately, the talk has more to do with slumping newspaper sales and an upcoming election than with real economic indicators.
According to the headlines and talking heads, the economy is headed toward inevitable collapse. They claim that the burst of the housing market was the first in a line of dominos. The fall of housing prices has caused a rise in defaults on mortgages, the result of excess borrowing based on rosy forecasts for the future of house prices. Banks, hard hit by delinquent borrowers, will limit loaning, leading to a credit crunch. Combined with rising energy prices, the falling value of the dollar, and the havoc caused by the subprime mortgage crisis in the financial industry, the effect of the scenario, these experts proclaim, will be a serious slump in growth for the US economy. These predictions seemed to be corroborated by the government with the Fed’s recent interest rate cuts and congress’s approval of a $170 billion stimulus package meant to encourage consumer spending.
An analysis of actual statistics paints quite a different picture. The American economy is healthy, if not especially strong. The problems surrounding the housing market do exist. In the past year, housing prices have stagnated significantly and production of the durable goods used in building new houses is down. Nonetheless, housing today makes up less than 5 percent of America’s GDP and the $100 billion dollars lost in the subprime crisis equals approximately .1 percent of the assets of all US households. This minute factor is highly unlikely to singlehandedly drive the country into a recession. Furthermore, outside of housing and finance, there are few major industries suffering significant losses. For example, in 2008, the wide majority of America’s top 24 technology companies have done better than Wall Street predicted. Simultaneously, exports, approximately twice as large an economic factor as housing, are growing at a steady 13.6 percent clip, personal income growth outpaced inflation significantly throughout 2007, and the GDP, adjusted for inflation, is expected to grow almost 4 percent in 2008. With the recent measures taken by the government to combat the nonexistent recession threat, the economy is actually much more likely to face significant inflation in the near future. The reality of the economy does not justify this pessimistic news coverage.
One part of the American economy that truly is in a rut is the newspaper industry. The advent of the internet and cable news channels has severely cut into traditional newspapers’ popularity. In the first 3 quarters of 2007 alone, circulation of newspapers fell by nearly 9 percent. Newspapers’ traditional appeal as a report of the latest events, human interest stories, and op-eds has disappeared. A printing press simply cannot compete in a world of constantly-updated news websites, blogs, and YouTube. The newspapers’ only remaining tool is the headline. The internet may have cornered the market of individuals actively seeking information, but a passive commuter or shopper startled by a headline will still pay to learn more about the issue. Hence, the print media is forced further and further into the realm of yellow journalism, relying on the shock-factor as its sole selling point. A major recession is frightening, making average Americans feel susceptible to forces beyond their control. Feeling vulnerable, they may make the impulsive decision to purchase a copy of their local paper. Suddenly, the newspaper industry is one copy closer to regaining the advertising revenue it has lost in recent years.
While print media has been facing an inevitable, steady decline for years, a much more temporal event, the upcoming presidential elections, have provided the other half of the recession-theories popularity. In recent months, the presidential candidates’ focus has shifted from the war in Iraq to the state of the economy. The war in Iraq is a difficult issue with a controversial reputation, no easy or proven solutions, and human lives at stake. On the other hand, economic recessions, a frequently occurring part of cyclical capitalist economies, have historical precedent and a variety of tested and proven solutions. Plus, it is much easier for candidates to debate strategy when American soldiers’ lives are not at stake. Whether the candidate is Republican or Democrat, the economy is a relatively tame issue, made relevant thanks to undeserved media attention. The candidates’ focus on the economy, in turn, brings it further attention.
The US economy’s well-being is made into issue by factors that have no economic relevance. Ironically, though, the government, forced to take action by public pressure, is doing everything it can to make sure that the hypothetical problems become actual ones. The Fed lowering interest rates will encourage more consumer borrowing, while the tax rebates will increase government spending. The government is trying to avoid the current problem by encouraging the sort of behaviors responsible for its existence. If nothing else, the same sort of problems will return in the future. Perhaps it is karma that, after the candidates focus on today’s imaginary economic trouble, the next president may have to deal with these economic issues after all.
Mr. Eygenson is a freshman who has not yet declared a major.