The Business Cycle and the Economy

Economic activity in the United States changes from year to year. The production of goods and services increases in one time frame while normal economic growth does not occur in another. Although these changes are irregular and unpredictable, most of the macroeconomic variables involved are interrelated and move together. This is particularly true about real output and unemployment. Fluctuations in real GDP and the unemployment rate are inversely related…as output drops, unemployment rises. These short-run changes in output and unemployment are known as the business cycle.

A business cycle is changes in output, income, and employment within the total economy. When businesses operate near capacity and real GDP (output) is rising, a peak occurs. As business slows, the economy contracts, sales drop, real GDP slows down, and unemployment increases. The business condition bottoms out at a trough where real GDP is dropping and unemployment is rising. When business conditions improve, an expansion phase occurs where sales increase, GDP grows quickly, and unemployment drops until economic growth reaches a peak again. Then the cycle starts over. Economic growth does not go on for an indefinite period because extended periods of growth, as well as short periods of concentrated growth, are eventually joined by higher rates of inflation. These higher prices spur policymakers to stimulate a downturn in hopes of reducing inflationary pressures by slowing economic growth.

Economic policy makers, the Federal Reserve Board with its monetary policies and the government with its fiscal policies, interpret and react to business cycles. They try to forecast just where the economy is going in the near future based on leading economic indicators. The ultimate goal is to sustain real GDP growth at a constant 3% non-inflationary rate, to keep the unemployment rate at the full-employment level of 5% to 6%, and to curtail inflation by keeping it at no more than 3%. In essence, policy makers try to level out the business cycle by diminishing the extent of differences in economic growth over the cycle. The explanation of how the Fed carries out monetary policy is the manner in which it responds to changes in output. The Fed can reduce output in the short-run by contracting the money supply. It can increase short-run output by increasing the money supply. The Federal Reserve can also increase or decrease interest rates to try and parallel aggregate demand growth with aggregate supply growth from year to year. For example: if the Fed decides that GDP is slowing down to a meaningfully lower growth rate, it may reduce interest rates to stimulate economic growth. Actions by the Fed definitely affect the quantity of output produced in the U.S. economy.

The Fed scrutinizes several economic variables that are indicators of economic growth and inflation. Monitoring changes in unemployment, the cost of labor, the use of productive capacity, the price of commodities, business inventories, and worker productivity allow the Fed to predict where the economy is headed. By monitoring the combined effect of economic indicators, the Fed is able to take action to either slow growth before inflation increases or expand growth if the economy has taken a downturn.

Teens, Jobs, and The Economy

More young teens than ever might be looking for jobs this summer as money is tight in many families. Many teens start looking for jobs when they get around the age of 15 or 16 as they enter high school and need money for dating and cars. This year though, many 13 and 14 year olds might be interested in finding some job or way to make money. How old does a child have to be to get a real job?

The US government has a set of laws that lays the groundwork for what kind of jobs teens can get and at what age they can get those jobs. For instance, any job that is considered dangerous or hazardous cannot be performed by anyone younger than 16 years old. Jobs involving heavy machinery and chemicals would fall into this category. Once you are 16 or older, you might be allowed to do some of those jobs or all of them. Additionally, each state has its own set of rules that need to be followed concerning child employment.

Teens that set out to find their first job are often scared and rightly so. It is uncharted territory for them and in many cases it will be their first foray out into the real world. This year might be an especially bad time to be looking for that first job as the economy is horrendous and they might face an unusually high amount of rejection. It is a bad situation for both employers and job seekers.

Very young teens will probably not qualify for many real jobs and most of them will probably be snapped up very quickly. This year, older teens and even adults may be happy to get any job they can and will take jobs that they might ordinarily have turned down in other years. This means younger teens will have to think of other ways to make money by perhaps doing odd jobs around the neighborhood such as pet sitting and weeding.

Summer is already here and those that started their job search early might already have jobs. If you are a teen just beginning to look, you should be aware that the road ahead might be long and frustrating. Patience will be the key as this could turn out to be one of the worst summers to be looking for a job in recent memory.

Health And The Economy

We normally do not think that health is related to economics other than with regard to the costs of medical care. But there is another more fundamental way money impacts our wellbeing. If you could not pay your bills or had to worry about where the next meal would come from, would you be thinking about health, or survival? When we are trying to stay alive moment-to-moment we don’t think about food choices, supplements, organic farming, animal welfare or environmental issues. Those considerations are a “luxury” dependent upon economic capability. But they are a luxury we must have if we are to live a reflective life and survive on planet Earth. Without a robust economy, you can pretty much forget about people being environmental, health conscious, or even civil to one another. In starving nations, war is endemic, disease rampant and the environment is only a raw material to be ravaged to hopefully live to the next day.

The emerging world economy will ultimately place great economic stress on the United States. It already has. Thousands of jobs are being lost to overseas companies employing workers requiring a fraction of the wages demanded here. People in America increasingly try to maintain a standard of living through debt. This is great for all the banks popping up on almost every street corner, but bad for the people. Just in the past year there have been almost two million personal bankruptcies declared.

To compete in the marketplace, companies must keep their costs down. If that means shifting manufacturing elsewhere, that’s what will be done. India, China and other Eastern rim countries are the beneficiaries of this shift in manufacturing and labor pool. While American workers are clamoring for things to return to the way they were with high wages and generous benefits, workers in developing countries are happy as can be having a job for five dollars a day.

This trend will not go away with “buy American” banners or political rhetoric about treaties, minimum wages and outsourcing. The global economy is here to stay and that will mean the American standard of living will retract and the developing world’s will improve. Expect a decline in the standard of living, falling wages and investment insecurity.

Government is not the solution, since it produces nothing but only takes. Government saps an economy, it does not create it. The more that government is hands off, the better the economic vitality. A robust private sector economy (environmentally responsible), on the other hand, is not the enemy as it is so often portrayed, but is critical to financial vitality.

Capitalism is not in itself a demon since it merely provides the mechanism for prosperity and with that the opportunity for a society to focus on matters of health and altruism. It works well if ambition and hard work, not merely greed, are its tools.

The inevitable decline of our standard of living is an inevitable and irreversible trend for the foreseeable future. It should concern us not because we want to see American super abundance continue, but because those who are unaware and get caught as casualties in this economic downturn will suffer in so many ways. The world is no longer business as usual.
Good health is not just about diets, supplements, organic foods and aerobics. It’s also about being safe, like driving carefully, not standing on the top of a stepladder, wearing safety glasses when chipping stone…and working hard, keeping our financial house in order and supporting societal choices that do the same.

Life is not surety, and neither is our economy. Nevertheless, hard work and prudent management will never be replaced and is as close to security as we can ever get. It, not entitlements and guarantees, is what ultimately creates the financial footing we need for good health and a sustainable, better and more peaceful world.