Students, experts discuss one-year anniversary of recession’s beginning

Pitt sophomore Trevor Lobaugh is feeling the effects of the downturned economy.

Now that the environmental studies major lives off-campus, he’s been forced to make a big lifestyle change — brewing his own coffee to-go.

He said he can only afford to splurge on “gourmet” iced coffee occasionally, as the cost quickly adds up.

“I definitely noticed it more this year,” Lobaugh said.

But one year after what the International Monetary Fund deemed “the largest financial shock since the Great Depression,” economic concerns still abound.

A September report from the Center for Economic and Policy Research stated that the past three months saw an average loss of 318,000 jobs per month, while adult males showed a 10.1 percent unemployment rate — the highest in nearly 27 years.

And future projections are equally bleak: In August, Congressional Budget Office predicted that the economy will remain “well below its potential level of output until 2014.”

It’s bad news for students like Lobaugh, who are poised to enter the job market within the next few years.

“I’m worried,” he said. “Hopefully it will all pan out by the time I graduate.”

Chris Briem, a research specialist in the University Center for Social and Urban Research, agreed that the job market is a pressing issue for soon-to-be graduates.

“Students are sort of a big part of the job market,” he said. “The global and the local and the national job market are probably as important to you as anyone else out there.”

He said that the recession causes increased competition for workers of all ages, which makes finding a job tougher for college-educated grads.

“It’s a much more broad competition for jobs than it might seem,” he said.

Though it might come as an unpleasant shock to college students, Pitt economics lecturer James Maloy said the economic situation has been brewing for decades.

He said the blame partially lies on current economic models, which don’t account for real-life situations because they are based on “rational expectations” of how investors and markets should function.

“Modern economic theories of the past 30 years [are] complete garbage,” Maloy said. “That ignores the fact that people don’t behave according to equations.”

The primary cause, though, was the government’s encouragement of social mood — or increased consumer spending — by promoting spend-friendly programs such as low housing interest rates and tax credits, he said. Homes became overvalued by three-to-four times their actual prices, which caused investors to borrow too much and create severe market inflation.

What happened next, Maloy said, was an “inevitable consequence:” a burst in the housing bubble, causing an inflationary depression.

“Policy has exacerbated this by encouraging people to buy today instead of tomorrow … [and] the bigger the bubble, the bigger the inevitable crash that follows it,” he said. “That’s what economics 101 tells you, first lecture.”

In the past year, Congress enacted various policies to combat the economic depression — including a more than $700 billion bank bailout and nearly $3 billion in the Cash for Clunkers car trade-in program.

And while the success of these programs has yet to be seen, Pitt economics professor James Cassing said the economy is showing slow signs of recovery.

“Nobody knows for sure what will happen, but things have gotten better,” he said.

The market has improved since last year’s housing bubble collapse. When finances froze, businesses were unable to operate and “everything just ground to a halt,” he said.

Cassing added that the number of lost jobs per month has been on the decline, and the growth domestic product — the sum total of all U.S. goods and services within the year — will likely be positive this quarter.

But while it’s beginning to improve, Cassing said the economy isn’t stable yet.

“Having said that, it’s gonna take a while to get back to normal ranges, particularly [with] employment,” he said. “It could take a long time.”

He said the government is trying to rejuvenate the banking and financial systems by keeping short-term interests low, purchasing bad bank assets and flooding the markets with federal reserve funds.

The solution seems easy: “Trying to get people to be confident [and] banks to be liquid,” Cassing said.

But Maloy disagrees that increased government spending is the solution.

He said the Cash for Clunkers and bailout programs are a way to “postpone the inevitable and avoid the problem” by continuing to allow excessive borrowing.

“It’s kicking the can down the road and actually making [the problem] bigger,” he said. “That’s essentially transferring the banks’ problems on to the taxpayers.”

Instead, Maloy said the only way to fix the economy is for the government to allow the recession to occur. If not, he said, a worse depression will follow.

“Things actually have to go down so things can essentially re-emerge from the ashes,” he said. “They’re trying to avoid paying the consequences of bad actions, and that’s not possible.”

The economic repair process will not be easy — but in the meantime, Briem said, there’s hope for college graduates finding jobs in the Pittsburgh area.

Briem said manufacturing towns are usually most affected by economic downturns. But because Pittsburgh turned its focus from steel production to service industries — such as education and health care — it’s been largely resilient to the recent market crash, he said.

“Things are actually a little better [compared to other cities]. It’s a much more diversified economy,” Briem said.

Cassing agreed.

“You gotta look for jobs where the jobs are,” he said. “But there’s some indication that the Pittsburgh market will be reliable at least, if not a high growth market.”