Economists See Recession Through - Case Study Example

Introduction: The paper aims at providing explanation on the current recession in the US and the reasons for the origination of the credit crunch using various newspaper sources and applying the Weber’s explanation of value judgments and evidence on them to understand the different views expressed in them. In other words, the paper will validate the information and facts stated in the various newspaper sources by assessing them through Weber’s value based judgments and evidence explanation. As Weber explains “Statements of facts are one thing and statements of value another, any confusion between the two is impermissible. (Hoenisch 2006). It clearly states that facts and information are different from values that exist in a judgment. We understand that a fact or evidence leading to a judgment is different from a value judgment. However, the question here is do facts and evidences on a situation enable us to make value based judgments? While we explore factual and perceptual information of the US recession, let us go over each piece of news from the leading dailies, over the last one year and carefully analyze and arrive at a consensus through Weber’s dichotomy understanding of facts and values. It is essential to arrive at a clear cut estimation of facts and the information stated in these dailies to understand their different views and the origination of the credit crunch. Body: Let us start off with the latest on the US recession. The Guardian reports “The US unemployment rate has hit a 26-year high after employers shed 663,000 jobs in March to cope with plunging demand for goods and deteriorating economic conditions. Official figures from the US Labour Department today show the rate of joblessness rose from 8.1% to 8.5% last month, its highest level since November 1983. The March figures were in line with economists forecasts and they had little immediate impact on the financial markets. The Dow Jones Industrial Average was likely to open marginally higher at the opening bell on Wall Street.There was a degree of relief that the numbers were not worse. Peter Kenny, the managing director of Knight Equity Markets in New Jersey, said: "It gives the market a sense that we dodged a bullet in the very, very near term. Its positive in that it wasnt a blowout number of more than 750,000."Nevertheless, jobs were lost in every sector of the economy except for healthcare and education. The White House had been expecting bad news. Speaking ahead of the figures, President Barack Obamas spokesman, Robert Gibbs, said: "I think its safe to expect - without having seen them - that well see additional severe job cuts in America.” Despite the rising level of joblessness, economists have begun to detect tentative "green shoots" elsewhere in the economy with the US housing market showing more activity and retail sales figures edging slightly higher.” Signs are accumulating that the worst may be behind us," said Nigel Gault, the chief US economist at his Global Insight, in a research note. He said he still expected unemployment to reach 10% before it peaks, with gross domestic product slipping further before bottoming out in the second half of the year. But he said: "There is now some solid evidence that the period of economic freefall is now behind us, that the next step will be a slower rate of decline."(Clarke 2009) The above piece of news gives us a picture that the recession in the US is correcting itself, by saying that ‘the worst is over’ However the news states factual evidence in figures only regarding the current rate of joblessness at it is the worst in the last 26 years . Though the paper reports about “green shots” in the country’s housing sector the statement of spokes person Robert Gibbs is perceptional as he states that the employment rates would have been worse off and the current numbers are better. Though the news reported starts with evidence of joblessness and the worsening situation in the economy, it closes with a value based judgment by portraying or laying emphasis the positive side of the economy. If the official recession started in December 2007. Let us look at the news published in the Times Online in December 2007. The paper reports “Losses arising from America’s housing recession could triple over the next few years and they represent the greatest threat to growth in the United States, one of the world’s leading economists has told The Times…………………..This is a classic bubble scenario. A few years ago house prices got very high, pushed up because of investor expectations. Americans have fuelled the myth that prices would never fall, that values could only go up. People believed the story. Now there is a very real chance of a big recession.” Over the next five years, the futures contracts are pointing to losses of around 35 per cent in some areas, such as Florida, California and Las Vegas. There is a good chance that this housing recession will go on for years,” he said……………………..Until two years ago, each of America’s 50 states had experienced a prolonged housing boom, with properties in some – such as Florida, California, Arizona and Nevada – doubling in price, fuelled by cheap credit and lax lending practices to borrowers who ordinarily would not have been able to secure a mortgage. Two years ago, the northeastern states of America became the first to slide into a recession after 17 successive interest-rate rises between June 2004 and August 2006 hit the property market.”(Budworth 2008) This news is true to the core as the country is on a 17 month recession since then. Although the news does not douse us with factual evidence on figures the reasons for credit crunch and the free fall of the market have clearly been outlined by a simple mechanism of “every uptrend has a downfall” The news is completely a value based judgment and it clearly proves the theory behind it. The news stated in the Times online about the start of the of the recession also exposes us to the reason for the credit crunch or the reason for the origination of credit crunch in the US which is better explained in the following lines again from the Times Online in August 2008 “In simple terms, a crisis caused by banks being too nervous to lend money to us or each other. Where they will lend, they charge higher rates of interest to cover their risk. In the real world, that means more expensive mortgages, dearer credit cards, pain for pension savers and other investors as stock markets fluctuate wildly, and in the worst cases repossession and bankruptcy. Years of lax lending inflated a huge debt bubble as people borrowed cheap money and ploughed it into property. Lenders were free with their funds, especially in the US, where billions of dollars of so-called Ninja mortgages - no income, no job or assets - were sold to people with weak credit ratings (called sub-prime borrowers). The barmy notion was that if they ran into trouble with their repayments rising house prices would allow them to re mortgage their property. It seemed a good idea when Central Bank interest rates were low; the trouble was it could not last. Interest rates hit rock bottom in America in 2004 at just 1 per cent, but in June that year they began to rise. As interest rates jumped, US house prices started to fall and borrowers began to default on their mortgage payments sparking trouble for us all” This is a classic explanation of the origination of the credit crunch and validates the previous report of the newspaper. The statements of the paper question the value and judgments of the banks and their lax lending policies. The information is based on evidence and is backed with logical explanation. The BBC online reports the start of the recession in January 2008 and reports “It said that Fridays employment report, which sent shares tumbling worldwide, confirmed that the US is in the first month of a recession. Its view is controversial, with banks such as Lehman Brothers disagreeing. But a reserve member of the committee that sets US rates warned that it could do little about the below-trend growth expected in the next six months. An official ruling on whether the US is in recession is made by the National Bureau of Economic Research, but this decision may not come for two years. The NBER defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months". It bases its assessment on final figures on employment, personal income, industrial production and sales activity in the manufacturing and retail sectors. Merrill Lynch said that the figures showing the jobless rate hitting 5% in December were the final piece in that puzzle. "According to our analysis, this isnt even a forecast any more but is a present day reality," (2008) The news published by the BBC is far the most validated piece as they entire information published is based on the actual definition given by the NBER for the term ‘recession’. Besides, the paper quoted reasons for the announcement of the US officially entering into a recession because of the decreased economic activity and the unemployment figures published by the government. It is indeed apt to publish news on a country’s recession only based on the economic figures for the Quarter ended. The news only states factual information that is backed with evidence it does not come to any conclusion or judgment regarding the economic numbers. According to the four aspects of Weber’s methodology, the first methodology of states, distinction between value judgments and empirical Objective casual analysis.” – Human subjects have values that impinge on what they choose to study, we only use subjective category to identify the world therefore researching it would not be any different.”(Hamlin 2008) Weber explains that researching a cause would only prove it and results may not be different to the one already intended. Should we say that all the information stated above by the different papers are aimed at one single cause the US in recession and therefore only state those evidences. NEW YORK (CNNMoney.com) – “A survey of top economists released Monday shows that the vast majority of them believe the economy has fallen into a recession that will continue throughout all of 2009.According to the National Association of Business Economists, 90% of the 102 members responding were more pessimistic about the economy than they had been in July. The economists indicated that a recession is likely to continue at least through the end of next year; with 79% saying the economy will grow less than 1% and 38% saying the economy will shrink next year. "There has been a sharp decline in current and near-term expectations among economists," said Ken Simonson, a member of the NABE committee that conducted the survey. "This represents a big turnabout in attitude about the economy." (Goldman 2008) This piece of news published in the CNN money online is based on the perceptions of the economists and definitely credible however one can say that this type of information was sought by the newspaper and hence the views of the economists published. Moreover, it displays a value judgment of reiterating that the US is in a recession and not the factual figures of why it is in a recession. This is just one side of the coin. We can also argue that the news and information published is only under the subtext of evidence and the evidence has led them to make value based judgments. “Stock markets plummeted Monday after news came that the United States is officially in recession. Grim assessments from Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson, as well as a report showing a further drop in factory activity, also weighed on investors. The recession began in December 2007, the last month that U.S. employers added jobs, says the National Bureau of Economic Researchs committee of economists, which dates business cycles. Firms cut 1.2 million workers in 2008 through October. November data, due Friday, will likely show more cuts. Bernanke noted the economy "remains under considerable stress" because of a sharp drop in consumer spending, a worsening job market, a moribund housing sector and tight credit. "The likely duration of the financial turmoil is difficult to judge," he said. "But even if the functioning of financial markets continues to improve, economic conditions will probably remain weak for a time."(Hauenbaugh ,Shell & Kirschof 2008) The last piece of news which definitely cannot be ignored are the plummeting stock markets that took a free fall in the recession it is also noted that the plunging of stocks in the US sends ripples across the world . The news states that the official announcement of the US recession came only in December 2008 while the country entered a recession in December 2007. The stock market is so typical of a value based judgment just the mere announcement of a recession is enough to plummet stocks that day there is no logic or reasoning or evidence behind this reaction of the stock market. Conclusion: From the above extracts of published news from the various newspaper articles it is evident that the recession and the credit crunch origin are both value and an evidence based judgments. A value based judgment for example the stock market which shows a huge dip in a single day although it has been evidencing a decrease in the money supply for over a year. Evidence based judgments that were published on the BBC regarding the economic figures of the country by saying that there is a negative growth and hence confines to the term of recession. Value and evidence judgments when we look at the economist’s statements and the positive statements on by the US Spokesman. Alternatively, if were to apply Weber’s explanation of Human subjects have values that impinge on what they choose to study, we only use subjective category to identify the world therefore researching it would not be any different.”(Hamlin 2008) the whole concept of a recession is based on a set bench mark and a deviation from this benchmarked economic activity confirms recession. The benchmark if considered a value that can be altered then the concept of recession is a value based judgment. References: Clarke A, 2009 ‘Recession claims 5m US jobs as rate reaches 26 year high’ The Guardian’ 3 April Available from : http://www.guardian.co.uk/business/2009/apr/03/us-unemployment-rate [07 April 2009] Budworth D 2008 ‘The credit crunch explained’ The Times Online 14 August Available from : http://www.timesonline.co.uk/tol/money/reader_guides/article4530072.ece [06 April 2009] 2008, ‘Recession in the US has arrived’ BBC Online 8 January Available from: http://news.bbc.co.uk/2/hi/business/7176255.stm [07 April 2009] Goldman D 2008, ‘Economists see recession through 2009’ CNN Money 3 November Available from: http://money.cnn.com/2008/11/03/news/economy/nabe_survey/index.htm [06 April 2009] Hauenbaugh B, Shell A & Kirschoff S 2008, ‘Official recession news hammers Dow Available from: http://www.usatoday.com/money/economy/2008-12-01-recession-pummels-dow_N.htm [07 April 2009] Hoenisch S, 2006, ‘Max Weber’s view of objectivity in social science’ Criticism Available from: http://www.criticism.com/md/weber1.html [07 April 2009] Hamilon J 2009, ‘Max Weber’ Department of Sociology theory Available from: http://www.d.umn.edu/~jhamlin1/weber.html [ 06 April 2009] Read More