Derek Wilson is a senior at Ball State University with a double major in economics and finance and writes ‘Making Cents’ for the BSU Daily News. This is one of three columns that netted him First Place in the NSNC Student Scholarship Contest.
Recessions not bad, should happen more often
By Derek Wilson, Ball State University
Recession is a dirty word.
No one likes to hear it, let alone experience it. Many people fear recessions. They think of the suffering, despair and uncertainty. But, I’m here to tell you that recessions aren’t bad; in fact, they are wonderful occurrences that don’t happen enough. Here are a few reasons why:
Lower interest rates. Who doesn’t love lower interest rates? You can borrow more money at a lower cost. Go ahead, max out those student loans. Chase is charging 4.5 percent on student loans, versus government Stafford loans at about 6.5 percent.
Lower opportunity costs. During recessions, job opportunities are scarce. It is likely your opportunity cost, or your next best alternative, has decreased. That makes your current job more valuable to you. For students, attending college is less costly, even more so when considering the lower interest rates on student loans.
Individuals are not the only ones who benefit from a recession. In my opinion, universities and businesses benefit more. For example, this school year Ball State has increased enrollment by around 900 students. On top of that, the university has raised tuition and fees by about $1,000 per student. Economic downturns historically increases enrollment at higher education institutions. Since Ball State has a limited supply of facilities (a more or less constant supply), when demand increases, price will increase.
On top of increasing revenue from students, Ball State has also, for the most part, frozen hiring and salary increases. Ball State’s current employees are being forced to work more at a lower real wage, meaning their efficiency has vastly increased. Management classes teach that high efficiency is the goal of managers. Therefore, President Gora is doing an excellent job as a manager. Had she been CEO of a large company she would be rewarded with stock options (usually worth millions of dollars). Unfortunately, being only a public servant, she has had to settle for a mere $200,000 bonus.
Businesses get a chance to share in the fun too. It’s no secret that businesses lay off employees during recessions. Do they get rid of their most productive employees? No, they lose the slack – the marginal employees whose productivity is, well, marginal. A recession gives companies the great excuse to get rid of their unproductive employees unceremoniously. The benefits do not stop there. Businesses also get to hire new, highly qualified employees for a discount. (Note: being hired during a recession will severely decrease your lifetime earnings, hence why everyone is returning to school.)
Recap: businesses get rid of expensive, unproductive employees and replace them with highly productive, young employees for what, in normal times, would be considered a below market wage. Win-win.
Recessions also are a good time for political leaders to pass ridiculous (progressive) legislation under the excuse of urgency, necessity and fairness. Our country has been living with the mistakes Roosevelt made in the 1930′s, mistakes that had very little to do with curing the Great Depression but a lot to do with the trouble our country finds itself in now. Social security, Medicare, Medicaid and welfare are all remnants of FDR’s New Deal. These are four of the most controversial issues America is dealing with – issues too intertwined in our society for a quick solution. But luckily, our current leaders know the best solution: “More is better.” The more being government spending.
The real benefactors of a recession are people who never invested their money in the market. Now is the one time they get to laugh at people who usually brag over lunch about how well their 401k’s are doing, and now they actually have a chance to catch up by investing. However, usually these people are too busy laughing and not investing. They miss the rally, but they don’t have to worry; they know social security and our government will take care of them, not the market.
The last and final benefit of recessions is that economists (and consequently economy majors) are all of a sudden popular. People suddenly care about our opinions. They ask “What’s going on in the economy? How bad is it going to get?” Most importantly, and numerously, they ask “When will this recession end?”
Honestly, I think we’re already out of the recession, but won’t find out that we are for a few months. So sit back, speculate a little in the market, refinance your loans and soon you too will reap the benefits of a recession.