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Deirdre Baskin
Professor Steven Scheer
Principles of Macroeconomics
11 October 2002
Reviewing the Elements of “A New -St yle Recession”
INTRODUCTION
Just as each decade and the Americans living in it are unique in time, each
recession in American history pos sesses unique characteristics. The 2001
recession seemed to sweep over the nation quickl y, and fall away just as quickl y
a short time later (Neusner 30). Furthermore, comparing this most recent
economic downturn to others of the past has brought out severa l interesting and
unusual economic traits, and given anal ysts new views on what makes a
recession and what does not.
Author Noam Neusner uses “A New -St yle Recession” to examine reasons
why the 2001 recession is unlike others, while emphasizing several of the
learning objectives from chapters 1 through 6 of the Taylor Macroeconomics
text. Specificall y, Neusner covers macroeconomics, macroeconomic theory, and
economic ways of thinking; spending, employment, and production in an
econom y; and government interv ention and its effect on the market.
MACROECONOMICS, MACROECONOMIC THEORY, AND ECONOMIC
WAYS OF THINKING
Macroeconomics is the branch of economics that examines the workings
and problems of the econom y as a whole —GDP growth and unemployment
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(Taylor 31). N eusner opens “A New -St yle Recession” by stating that the 2001
recession taught some new lessons in macroeconomics and macroeconomic
theory. One of the biggest lessons was that recessions are not a thing of the
past, but can continue despite the economic su ccesses of the United States thus
far (Neusner 30). Because of the 1990s growth span, the longest expansion in
United States history (Taylor 78 -79), some economists, as well as government
officials and investors, wrongl y assumed that recessions were a thin g of the past
(Neusner 30). This newest recession has been an aid in macroeconomic study
and prediction in relation to business cycles.
SPENDING, EMPLOYMENT, AND PRODUCTION IN THE ECONOMY
Usuall y, a change in income changes consumer spending habits. An
increase in income increases the demand for most goods, while a decrease in
income decreases the demand for most goods (Taylor 42). Neusner disagrees
with economic theories of income as a factor in consumer spending. Though
consumer spending was up when the market went up, it did not fall with falling
stocks (31). There were other factors, however, that changed to make any t ype
of ceteris paribus anal ysis inaccurate. Consumers kept spending because lower
energy and borrowing costs, along with higher real inco mes, made spending
desirable (Neusner 31).
Unemployment during a recession tends to rise, and declines during a
recovery (Taylor 80). Looking at employment rates in the 2001 recession, there
were contradictions in hiring and firing. Though some firms cut employees to
save profits, others firms cut profits knowing that their productivit y would
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suffer if they fired their highl y skilled (and usuall y highl y paid) workers
(Neusner 31). Furthermore, unlike other recessions, this recession affected even
the richest of the rich—between high profile bankruptcies and later corporate
scandals, chief executives struggled much more to make budgets and profits
than in earlier years.
GOVERNMENT INTERVENTION AND ITS EFFECTS ON THE MARKET
Despite criticism about the Feder al Reserve’s interest rate cuts, these
interest rate cuts, along with Congressional tax rebates, successfull y spurred
economic growth (Neusner 32). The interest rate is a key economic variable that
is related to the growth and change in real GDP over time, since interest rates
rise before each recession, and then decline during and after each recession
(Taylor 84-85).
CONCLUSION
After reading this article, one thing that deserves mention is that
economics is a very complicated subject. Neusner shows that e ven economists
can make mistakes in predictions, and that constant growth and change in
economics forces constant learning and change in the study of United States
economic theory.
Additionall y, there seems to always be several factors affecting an
economic trend, not just one factor as assumed in the Taylor textbook. This
assumption is likel y for simplicit y, but limits tools for economic anal ysis since
there reall y is no simplicit y in hands -on case studies of economics.
This article also fails to mention the effects of the September 11 terrorist
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attacks on the economy. While several consumers began to truly feel the effects
of unemployment, rising energy prices, and other economic events after
September 11, a few economists noted a recession in January of that year, long
before the government made mention of it. An interesting analysis could have
taken place as to how the terrorist attacks (and perhaps the current threats of
war against Iraq) had an effect on a recession that already existed.
Overall, the Neusner article was quite interesting, and reiterated several
learning objectives covered in the class. It was relativel y easy to read, and
spurred a lot of thought as to what makes a recession and what does not in the
twent y-first century.
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Works Cited
Neusner, Noam. “A New -St yle Recession.” U.S. News & World Report 15 Apr.
2002: 30-32.
Taylor, John B. Principles of Macroeconomics 3rd ed. Boston/New York:
Houghton Mifflin Company, 2001.