Sociological Impact of the Ongoing Downturn In Our Economy/Housing Market - Term Paper Example

? IMPACT Sociological Impact of the Ongoing Downturn In Our Economy/Housing Market Introduction While there has been some anemic recovery in the US economy from the 2007-2009 global recession the housing market remains a serious problem. For the most part the economic impact has been well documented analyzed and quantified the sociological implications are less clear. Some trends have at least been identified if not quantified, but some sociological consequences of the ongoing downturn may not fully play out and be thoroughly understood for years. However 7 internet articles I believe give some clues regarding different aspects of the sociological impact. They will be discussed in turn. “Wealth Gaps Rise to Record Highs between Whites, Blacks and Hispanics” This article (Kochhar Fry and Taylor 2011) is both interesting and worrisome. Using statistics it shows that the recession has widened the wealth gap between whites and blacks/Hispanics even though all groups have suffered losses. Asians are in between. For example, the net worth of whites fell from approximately $135,000 to $113,000 during the period 2005-2009, Hispanics from about $18,000 to $6,000 and blacks from $12,000 to $6,000 during the same time period. Asians fell from $168,000 to &78,000. However, many Asians are recent immigrants and since it takes time to amass a net worth, if you remove recent (less than 5 years) arrivals from this group their 2009 net worth is similar to that of American whites. The reason minority households were more severely affected than white people were is because they were more dependent on home equity rather than stocks for their net worth. Therefore, while the stock market has rebounded, the housing market has not benefiting whites more proportionally. Also Hispanics and Asians as groups suffered largely because they tend to live in California, Florida, Nevada and Arizona, states most impacted by the housing crises. The authors provided statistics to show that Hispanics and blacks had more home foreclosures and a greater reduction in home ownership rates than any other group. They also showed that these groups had more negative net worth, largely due to “under water” mortgages where the balance owing exceeds the house value. In summary, they illustrated that the wealth gap is the highest it has been for 25 years, with the recession wiping out the minority gains of the 90s which had reduced this gap. Although not discussed in this article, this trend of wealth gap widening is worrisome if it continues. I has negative sociological potential for race/ethnic relations. Even before the recession particularly blacks and Hispanics tended to be in an inferior economic position than whites and have fewer real opportunities for education and career advancement only partially remedied by affirmative action programs. If they are forced out of their homes and ghettoized in substandard rental areas, this could exacerbate stereotyping and threaten already fragile race relations. We may even see a return to the race riots of the 1960s. Experience has shown that racial harmony is promoted when all groups can integrate and share I the attainment of benefits the society offers including home ownership. “10 Signs the Double-Dip Recession Has Begun” McIntyre (2011) argues that not only has the US weak recovery stalled, but we are entering the second dip of the recession for the following 19 reasons. First, inflation has returned with increases in commodity prices such as coffee, cotton, sugar, meat and corn based products. Secondly, while late 2009 saw a significant increase in stock prices, they stalled in 20011. Treasury bills have only a 3% yield and the value of gold has faltered. Third, while there was an increase in auto sales after the bailout, they have now stalled again. Forth, while crude oil prices dropped to under $50 a barrel in 2009, they have now rebounded to well over $100, causing gas prices to rise to almost $5 a gallon. This has hurt retail sales and firms producing products from petrochemicals. The fifth argument is that the massive federal government debt leaves no room for further stimulus to counter recessionary trends.. Gross Domestic Product (GDP) is less than 2 % and there have been significant job cuts in not only the federal civil service, but also at the state and local levels. State staff cuts and wage and benefit limitations have resulted in bitter battles between unions and governors. Because of the need to borrow more, states have had to increase interest on bonds. The sixth point is that even China’s economy has slowed hurting US exports there and business operations within China such as GM. Seven, even though unemployment has dropped slightly, it still remains above 8%, negatively impacting spending and GDP growth and costing the government more in unemployment insurance. Eight, the enormous federal debt not only limits the government’s ability to provide aid, but also higher taxes and fewer government services will likely be required to deal with it , especially when an aging population means there will be higher Medicare and Social Security costs. Nine, there will likely be continued restrictions on access to commercial credit, particularly for small business which in aggregate is the largest sector of the economy. For home buyers this means higher down payments averaging 22% finally the housing crises means fewer construction jobs until the housing inventory is cleared. Over 28% of single family homes have “under water” mortgages and this industry is the single largest drag on the US economy. I don’t know whether these negative signs are sufficient to push the American economy into another recession, but it appears certain that the recovery will continue to be anemic at best. Project Report of Impact of Recession on US Economy This is by an Indian MBA graduate student (Mehta 2008). She starts off with a definition of recession as GDP slowed to negative growth for 2 consecutive quarters accompanied by limited business expansion and a falling employment rate and decreasing house prices. The initial predictor is usually a sharp drop in the stock market followed within 3 months by unemployment increases and falling house prices. Government responses are normally twofold, monetarist, an emphasis on monetary policy, and Keynesian, increased government spending to stimulate economic activity. Interestingly, she points out all economists claim recessions can’t be avoided entirely, only controlled to some extent as the causes are not fully understood. She claims the US 2007-2009 recession was exacerbated by the leveling off of the production of crude oil and the sub prime mortgage crises. She states that sub prime loans were started in 1993 when borrowers with FICO (consumer credit) scores below 640 were allowed to borrow with higher than normal interest rates. The loans could be for credit cards, autos or mortgages. Theses risky loans were then packaged sold to other financial institutions with the claim they were low risk. Not surprisingly, apparently an ING Direct survey indicated that 29% of Americans believed their marriage was ruined by the recession and were more likely to defer retirement than give up prized possessions such as cars. This feeds into the notion that Americans were ill prepared to cope with the recession because of their high personal debt. This, plus a reduction in real wages eventually forced American consumers to curb their own expenses by eating out less and limiting their retail purchases. However, certain industries are more recession proof than others because they are necessities such as basic food items, pharmaceuticals and apartment rentals. “Economic Recovery Sustaining US Economic Growth in a Post Crises Economy” This is a report prepared by Elrich (2011) on behalf of the Congressional Research Service to help law s establish legislation. It starts off confirming the recession indicators of a contraction in the GDP between 2007 and 2009 of 5.1% and an unemployment peak of 10.1%. In 2008 and 2009 the Federal Reserve lowered interest rates to near zero to establish their status as lender of last resort. While there has been some growth in GDP since, it has been modest at about 2 % and uneven. Personal consumption spending had risen to 70% of GDP in 2007 fueled by high personal debt from 45-50% in the mid 80s to 100% in 2008. In this recovery there has been a large diversion of current income from consumption spending to debt reduction. In other words, unlike after previous recessions we have not seen a strong rebound of consumer spending as many Americans had already “maxed out their collective credit cards” and other debt servicing capacity. This largely explains why in the current recovery we see annual GDP increases of only 1-2% rather than the 5-6% after previous recessions. Historically, American frontier individualistic ideology has conveyed high status on those able to enrich themselves through creative enterprise and hard work. This led people to try to demonstrate their success through conspicuous consumption , that is, buying and displaying their wealth symbols, not because of need or even want, but simply to prove they could do so. In the immediate years prior to the latest recession, with the easy availability of credit, people who felt social pressures to appear as well off as their neighbors, were able to create this illusion by their excessive use of credit. It appears to me that perhaps a silver lining for this anemic recovery is a positive sociological impact. In other words, it seems Americans have “learned their lesson” as their credit maximization has forced them to pay down their debt and restore their savings rate rather than resume their previous level of consumer spending. For example, the savings rate which was about 10% of income before 2000, reduced to 1.6%in 2995 has now rebounded to about 6%. As the first article in this review shows, there has been some rebounding of household net worth at least in white America. While I believe it is unlikely the US will have anything more than a weak economic recovery, at best, this may be offset to some degree by a positive sociological impact with people living more within their means because they are less driven by conspicuous consumption to attain status. Other factors inhibiting a robust recovery include continued high energy prices, especially imported crude oil and volatile investment spending. Although investment spending in 2011 by business on equipment and software rose from 11-12%of GDP to 13.5%, it will likely dip again with weak consumer demand. Also the housing market is likely to remain depressed for some time because a large inventory of vacant homes means little residential construction will be required until this is reduced. Further, the US 3% trade deficit will probably remain as attempts to rebalance exports and imports will likely be resisted by US trading partners. The growth of the aging American population will put more demands on Social Security and Medicare programs. Finally, there is the issue of structural unemployment, with the composition of the labor force not matching the technical requirements of available jobs, and high risk ventures and research and development sharply reduced in crises. Therefore the downturn, especially of the housing market, is expected to remain for some time with both positive and negative sociological impacts. “What is Economic Depression?” This short article by Turner (2009) discusses the role of the sub prime mortgage credit deposit swaps in the recent US recession. Traditionally banks and other financial institutions were required to keep on hand a percentage of their total obligations in the form of liquid assets to prove to regulatory authorities they could meet any anticipated payout requirements. This limited the amount they could lend to customers. In 1994, in order to get around this onerous requirement some young employees of JP Morgan packaged individual mortgages into bundles and used these to satisfy the regulations. As mortgage rates rose, defaults and repossessions reached an all time high. This was fueled by predatory sub prime lenders who charged even higher rates. Therefore, underperforming mortgages were hidden within these bundles which were falsely alleged to be tripe AAA risks. The use of these instruments mushroomed as they were bought and sold between firms. Also unlike traditional banking methods they were unregulated and therefore opaque to government oversight. Also rating agencies were duped into giving these instruments high ratings as either they did not see their true underlying value or were bribed to give false high assessments. When the relative true worthlessness of them was discovered, panic attempts at sell off ensued as firms attempted to unload them. Huge losses and bankruptcies resulted and the financial system was paralyzed with fear necessitating massive government bailouts. The financial crises caused the economic depression with an abrupt steep decline in business activity and rising unemployment rates. The devastating role of credit deposit swaps can be shown when one compares the experience of Canada an the US. While Canada was by no means immune to the Global Recession, the damage there was less and the recovery more robust. In particular, the absence of this instrument and Canada’s tight centralized banking regulations prevented the housing crises experienced in the US. “Marital Disruption during the Great Recession Divorce Filings in Five US States Brines and Serafin (2012) begin their study by reporting that the US divorce rate dropped from 22.8 per thousand married couples to 16.7 between 1974 and 2005. They postulate that the 2007-2009 recession will soon reverse that trend. Indeed they discovered that filings in counties in Washington State showed an upward trend during the recession. However, finalized divorce statistics during the same period in 5 states hardest hit by the recession show no spike. They speculate that this could be because of the time lag of up to 2 years between filing and finalization and increases could be expected soon. One would expect the stress of job losses,, anticipated job loss and home foreclosure would have a negative effect on marital harmony, especially where the relationship is not strong to begin with, and indeed the authors discovered a correlation in the Washington State filings with economic difficulties. However, an absence of an increase in filings may not be a true barometer of marital bliss for several reasons Couples dissatisfied with their marriage may still not divorce because of anticipated harm to their children, because on partner usually the female feels dependent on their spouse’s income and unable to support themselves or because they are preoccupied with their economic issues and therefore want to postpone filing, or because their mortgage is “under water” and neither partner wants to be saddled with the debt. Although some correlation between divorces granted and economic issues caused by the recession is anticipated, figures documenting this will not be available for a couple of years. “The Long Range Impact of Recession on Families This paper by Adrian and Coonty (2010) gives a good summary of the sociological impact of the recession using statistical information and studies to date. For example, in March 2010 44% of jobless workers were out of work at least 6 months. The poor increased by 15% from March 2008 in urban areas and 25% in the suburbs, mostly lacking in emergency shelters and social services. In 2009 18.5% claimed in a survey they didn’t have enough to eat and 75% of food banks reported they had to reduce the amount of food provided to each client. One fifth of New York residents stated they had a utility cut off for non payment.. About 50% of unemployed advised they had to cut back on medical treatment. In March 2010 ? of mortgages were “underwater”. There was an increase in death rates during the recession and 30% of suicide hotline calls were related to the economy. Studies have shown that economic uncertainty is the number 1 predictor of health problems, depression, insomnia and stress, even for those employed because of fear of layoff. There tends to be increased conflicts with one’s family with women likely to feel anxiety and depression and men shame. Men who suffer ? of the job losses often take this as a fundamental threat to their identity. Unemployed men often take their frustration out on their partners, sometimes in increased domestic violence. For single mothers, statistics show that in 2010 they suffered a 68% increase in their unemployment rate compared to pre recession. Single mothers, especially colored, are more likely to be targeted by predatory lenders for sub prime loans and mortgages. In 2007 40% of families faced eviction because of foreclosure on property they rent. One in 7 children is resident with a parent who has lost their job. Parents’ difficulties can have a devastating psychological effect on children as they start identifying more with their peer group rather than with their parents. Motivation to succeed in school and in life can plummet and teachers report increased behavior problems. Homeless and other poor children are more likely to remain so in a recession. Also their long term memory could be impaired. Young adults 18-29 sustained 37% unemployment in 2009, and college tuition hikes caused many to move back in with their parents. They also tended to experience depressive symptoms, heavy drinking and low salaries if the did find work. Blacks make up 5.5% of the labor force but constituted 13% of the long term unemployed. Slashes in pension benefits have caused many seniors to postpone retirement or attempt to return to the labor force. While more of the older workers are employed, if they do lose their job on average it takes them 40% longer to find a new one. Although divorce finalization may not increase during a recession, there is likely to be an upturn in family violence and divorce filings. Fertility rates decline during a recession and there are likely to be more difficulties in disciplining children. Obviously all the above paints a very depressing picture but on the positive side the current downturn has seen an upswing in volunteerism and charity donations. “A post-Recession Update on US Social and Economic Trends” This paper by Jacobsen and Mather (2011) using statistics and charts documents the negative effects of the recession on unemployment rates, poverty, home ownership and value, educational attainment, and the fact that blacks and Hispanics suffered the most severe impacts. For example, while the overall unemployment rate in 2011 was about 8.6%,, for blacks it rose from about 7 % to 14.3%, and for Hispanics from about 5% to 11%. By comparison, the rate for both whites and Asian Americans was about 4% in 2000. Whites rose to 7.6& while Asian Americans rose to 7.3%. As one would expect, unemployment rates decrease for all groups with the attainment of higher education. However, blacks have the highest rates at all educational levels, suggesting the continued presence of racism in American society. The study also confirms the unemployment rate is highest among the 18-24 year old age group. Poverty rate is a widely used indicator of family economic security. The threshold annual income for a nuclear family of 2 adults and 2 children is $22,113 and between 2008 and 2019 the percentage of such families falling below that threshold rose from 13.2 % to 15.1%, the highest since 1993. While the poverty rate for seniors has remained relatively constant since 1998 at about 10%, the rate for children has risen significantly to over 20%. This no doubt reflects that children are dependent on their parents’ employment income or lack of it, whereas most seniors are no longer working and still get income from pension plans. Again, black and Hispanic children have much higher rates than their white counterparts. It is expected that this situation will continue and with minority fertility rates far outstripping those of whites, this could have negative implications for funding Social Security and Medicare when these children reach adulthood. Home owner-occupied dwelling rates overall have decreased from 67% to 65% between 2000 and 2910. The white rate was in the low 70s% for this period, the Asian American about 52-55%, and the Hispanics and blacks about 43-45%. Also blacks and Latinos were more affected by foreclosures than whites widening the gap of ownership rates which had previously been narrowing. Between 2008 and 2010 median home values dropped from $197,500 to $179,900. Again blacks and Hispanics were the most severely affected groups. In 2010 21 states (largely those with the highest concentrations of these groups) experienced a decline in median home value compared 7 states which had an increase. Finally with respect to education, Asian Americans lead all groups, both in terms of enrollment and graduation rates, followed by whites. I would suggest that unless ways are found to increase the educational attainment rates of other groups to approximately reflect proportionally their populations, this could have continued negative consequences for race relations with them being ghettoized in low socioeconomic jobs if employed at all “Housing Costs, Zoning and Access to High Scoring Schools” This article be Rothwell (2012) documents the relationship between housing and attendance at schools that score high in standardizes state exams. Theses schools tend to be located in more affluent neighborhoods largely populated by whites. Hispanics and blacks usually are relegated to inferior schools because they can’t access the better ones since their income levels preclude residency in the area serviced by these schools. Zoning restrictions often exclude low income housing there. The situation has been exacerbated by the greater impact of the recession on their economic and housing capabilities. Minority students who are able to attend better integrated schools tend to perform as well as their white counterparts. Naturally low educational achievement is linked to lower chances to attend college and less ability to find a good well paying job. This school segregation could be reduced by charter schools, school vouchers, and the elimination of attendance boundaries. Merit pay for high performing teachers is seen as a way to increase education quality. The author offers various strategies for promoting integration and low income access to better schools including the elimination of exclusionary zoning based on house type (eg. Single family) or size, housing vouchers and land use policies such as requiring contractors to set aside a certain percentage of their development for affordable housing. In the long run the promotion of educational integration will stimulate racial and employment integration and help the US both sociologically and economically. Conclusion Although not yet fully assessed and quantified, the ongoing downturn in our economy /housing market has obviously had many severe negative sociological impacts. However, on the other hand there have also been some positive outcomes. In the American population at large it appears the recession has forced a waning of the status driven ideology of conspicuous consumption. No longer are most Americans “maxing out their credit cards “in an effort to compete with their neighbors and appear more affluent than they really are. Instead they are showing more responsibility by paying down their debts and saving. This curtailment of consumer spending undoubtedly is detrimental to a robust recovery, but it should help citizens cope with the next recession. Also the upswing in volunteerism and charitable giving indicates the development of a community spirit which should help alleviate economic and psychological stress the hardship of a recession brings. Works Cited 1) Adrian, Valerie and Coonty, Stephanie “The Long Range Impact of the Recession on Families” Council on Contemporary Families April (2011) retrieved from contemporary families.org/economic../the-long-range-impact of the.. 2) Brines, Julie Serafin, Brian Dept. of Sociology, University of Washington, Seattle “Marital Disruption during the Great Recession Filings in Five US States” retrieved from paa.2012 princeton.edu/downloadaspx?submissiond=122881. 3) Elrick, Craig K. “Economic Recovery Sustaining US Economic Growth in a Post Crises Economy” Congressional Research Service Dec (2011) retrieved from http:/www.Fas.org/sgp/crs/misc/R41332.pdf. 4) Jacobsen, Linda A and Mather, Mark “ A Post-Recession Update on US Social and Economic Trends” Population Reference Bureau Dec. (2011) retrieved from www.prb.org/Publications/.../USeconomicsocialtrends-update/...aspx? 5) Kochhar, Rakesh, Fry, Richard and Taylor, Paul “Wealth Gaps Rise to Record Highs Between Whites, Blacks, Hispanics” Pew Research Center July (2011) retrieved from www.pew/social/trends.org/,,,/wealth-gaps-rise-to-recorrd-highs. 6) McIntyre, Douglas A. “ 19 Signs the Double Dip Recession has Begun” US business on msnbc.com July (2011) retrieved from www.msnbc.com/usa/signs-double-dip-recession-United States 7) Mehta, D Lovely Professional University “Project Report of Impact of Recession on US Economy” retrieved from www.scribd.com/doc/26672529/Study-the- Impact-of-Recession. 8) Rothwell, Jonathon “Housing Costs, Zoning and Access to High Scoring Schools” 2012 Brookings retrieved from www.brrokings.edu/school/0419_school_inequality_rothwell. 9) Turner, Rebecca “What is Economic Depression” Suite 101 Jan . (2009) retrieved from Rebecca-turner.suite101.com ( ) Investing) Economics Read More