Tiffany Valaanderen
Staff Writer

A lack of consumer confidence in the direction of the U.S. economy is packing on the pressure for the presidential candidates as the race for the White House intensifies.

For a nation sometimes referred to as the locomotive of the world, the resilience of the U.S. economy is crucial to its role as a major competitor in the world market.

Concerns that a recession is looming are attributed to many factors.

For the U.S. economy to experience a recession, the gross domestic product, needs to have negative or no economic growth for two consecutive quarters.

The GDP represents the total value of goods and services produced in a country during one year.

The U.S. Department of Commerce Bureau of Economic Analysis released GDP figures for the fourth quarter of 2007 with an increased annual rate of 0.6 percent, while the GDP for the third quarter increased 4.9 percent.

“We are not technically in a recession,” Ahmed Ispahani, professor of business administration and economics, said.

Figures represent the economic state of the previous quarter.

Ispahani associates a time lag with these figures.

High unemployment rates, reduced money supply in circulation, the sub-prime mortgage problem, rising oil costs and high trade and budget deficits are merely a few sectors that have Americans cautious about the future.

The sub-prime mortgage problem has set leading examples that Americans witness and the rippling effects on the housing market as a whole.

Americans were borrowing money on bad credit, the sub-prime aspect, and believed they could make payments since interest rates were low for the first year.

Many interest rates were not set or fixed.

Paul Abbondante, professor of finance, said people were naïve and unrealistic in thinking they could afford the additional payments over the years.

“People overextended themselves,” Ispahani said. “People had to walk away from their homes. Banks now have thousands of homes sitting on them.”

New housing construction is currently stagnant since many houses were left without owners, and those who bought mortgage bonds from the banks could not rely on this usually safe investment.

Those in construction, real estate and even the steel industry fell in this domino effect.

The imbalance in trade exports and imports is reflected in the nation’s trade deficit of over $200 billion to date.

“Money will not be used in the U.S., rather it goes overseas, which has no direct stimulus on the economy,” Ispahani said.

Ispahani believes level playing trade practices need to be implemented in order to balance the free market.

When reflecting back on U.S. history, government projects, production and World War II were all positive stimulants for the economy.

Ispahani said products were made in the U.S., which had a multiplier effect on the economy.

The difference today is the bulk of products and resources, such as steel and cement, are imported from overseas.

“Even the American flag is made in China,” Ispahani said.

In response to the current economic downturn, the Bush administration has composed a stimulus package to offer taxpayers relief.

Single tax payers who earned at least $3,000 this past year will receive $300.

People can receive up to $600 for individuals and $1,200 for married couples based on income, with an additional $300 for each household child.

“It will have no effect on the economy. It’s a waste of tax- payers money,” Abbondante said.

“A lot of people are concerned with recession and will use it to pay off debt or save it,” Ispahani said.

If Americans do respond this way there will be virtually no stimulus effect on the economy.

Joseph Priester, assistant professor of marketing at USC, feels people will switch from a “promotion to prevention” focus.

“Consumers will ask how they can keep themselves safe,” Priester said.

“You can predict through housing prices that people will not spend,” Priester added.

According to Abbondante, consumer spending accounts for two-thirds of the economy.

He is a firm “free-market economist,” in that he believes the market should be left alone to pick itself up.

“Let the people and the banks fail. They need to learn a lesson,” Abbondante said.

The presidential candidates have all addressed concerns about recession.
The three leading candidates, McCain, Obama and Clinton call for reduction of taxes for the middle class and emphasize the importance of training and education to keep American jobs open.

Obama and Clinton support investments in alternative energy to create jobs.

McCain proposes cutting the corporate tax rate from 35 percent to 25 percent to keep America as a leading competitor among trade partners.

Abbondante believes the candidates provide only general statements before the election and appear to not fully understand economics as a whole.

“Once you decide on a plan, people will be divided on it,” Abbondante said.

Among the experts discussed, they believe the United States will pick itself up.

“I’m not really worried. Yes, it’s hard when people are laid off, but there aren’t any major causes for a deep recession,” Abbondante said.

“I’m very optimistic about the resilience of the American people,” Ispahani said.

“America is the locomotive of the world, when she stalls other countries will follow.”

Tiffany Vlaanderen can be reached at tvlaanderen@ulv.edu.