Tag Archive | "Economics"

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Cut big oil some slack

Posted on 29 January 2009 by Nick Preston

You’re all probably wondering how someone can say such a rash thing, how anybody short of the devil himself could come to the defense of such a great evil as Big Oil. So let me start out by saying that by and large I am not a fan of oil companies. Their money too often finds its way into the pockets of too many politicians who are only too gracious to return the favor at seemingly any cost. Moreover, this country is entirely too dependant upon oil as a source of energy. Oil is one great big basket into which we have placed all our energetic eggs.

Having said that, looking back at the events of the past year, I feel inclined to come to the aid of big oil. 2008 saw oil at its highest price ever of $147.30 a barrel, with the average American shelling $4.11 for a gallon of gas this past July. Many accused oil companies of price gouging and demanded that greedy oil execs testify in congress to explain the soaring prices. Certainly people had a right to be angry (I have to admit that I was one of them), but the end of 2008 proved that we should have directed our anger not at oil, but instead on global speculation.

Prices dropped at the end of 2008 because the global economy tanked and demand for oil dropped. The fact that oil plunged to less than $40.00 a barrel provides vindication for oil companies, and proves that global demand and speculation rather than greedy oil tycoons drove oil prices to their record heights.

Even more importantly, oil companies are doing well what most other companies are not in the present economic climate: still employing Americans and paying taxes. Exxon Mobil, for instance, directly employs 30,000 Americans while employing thousands more through its subsidiaries and at its retail sites. With almost daily news of companies laying off thousands of employees, 30,000 secure American jobs is nothing at which to scoff. As far as taxes go, Exxon Mobil paid almost $30 Billion dollars in net income taxes to the U.S. government in 2007 alone. This number does not include the billions more the corporation shelled out for sales based taxes and other duties.

Exxon Mobil, along with other American owned oil and gas companies such as BP, Royal Dutch/Shell, Chevron and others employ thousands of Americans and continue to pay billions of dollars in taxes in the current tough economic climate. Yes, these companies garnered huge profits as gas prices skyrocketed, but profit is taxable and is ultimately used to create more jobs through capital investment and business expansion. There is a bad side to big oil, but there is certainly a good side as well in what it does provide for the U.S. economy. For this, at least, it should not be faulted.

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Domestic auto: The “don’t let them die” fallacy

Posted on 21 November 2008 by Jason Ardanowski

I am a Detroiter; to be exact, I lived from birth to age eight in Dearborn, where Ford World Headquarters was just another building I passed by almost daily. My aunt works in the Renaissance Center and my sole living grandparent has her savings tied up in now-worthless General Motors stock. I drive a Pontiac Grand Am made by union labor in Lansing, Michigan. My next-door neighbor works in the blast furnaces at a GM plant, and my Uncle Larry, semi-retired, leads the factory tours of the Ford Rouge facility. My friends’ families are full of active and retired autoworkers.

Hence, I say, with a heavy heart and with full awareness of the social upheaval this will cause in Southeast Michigan: a bailout for the Big Three, beyond the $25 billion already promised them by Congress, would be disastrous and foolhardy. It is time to let GM, Ford and Chrysler die – or, more accurately, to let them go into bankruptcy and be radically re-structured and pruned into profitable companies once again. You might ask, “What about the workers?” My answer is unpopular but necessary: cash handouts.

Henry Hazlitt, the great Chicago School economist, once wrote, “The essential political aims of [senators allied to the silver mining industry] could have been as well achieved, at a fraction of the cost, by the payment of a frank subsidy to workers.” The times call for a Hazlitt-approved solution. Bailing out the auto industry would transfer hard-earned tax revenue away from successful companies to a failing industry; more-over, the Big Three could not credibly guarantee that this bailout would be the last. Government subsidies are like Frito-Lays: bet you can’t have just one. In the next economic slump, domestic car companies would beg Washington for more money to cover their rear ends for another round of foolish and shortsighted business decisions.

The best solution to a problem without any good solutions is to penalize upper management and compensate the assembly-line grunts. GM, Ford and Chrysler, left to their own devices without federal support, would go bankrupt no later than 2014. Then bankruptcy protocol would take over. Ford and Chrysler are basket cases all around, so their operations would be drastically curtailed. GM is profitable overseas, and it makes excellent, globally competitive cars; its primary concern, other than health insurance, is domestic over-production. It needs to make and sell fewer cars, and that can be done at less invasive costs than Ford or Chrysler would incur. The Big Three, throughout, need strong bankruptcy receivers (a court-appointed guardian of a bankrupt firm’s financial balance sheet) who can work as free of political interference as possible.

Of course, a sizeable proportion of the 250,000 or so Americans now employed by the Big Three car companies would lose their jobs. Here’s where the compensation package fills the void. Every worker below a certain pre-arranged level of management (which could be decided in cooperation with the United Auto Workers) would receive a severance pay lump sum of $100,000, foregoing the right to a pension or any other type of compensation. This $100,000 would be a nest egg for laid-off autoworkers to pursue higher education in a different profession, start a business or stay home with his or her children while that person’s spouse works full-time. The nattily clothed executives and upper-tier managers, the people whose errors are responsible for putting the American auto industry in its predicament, would not see a single dime of this money.

In our response to the economic Panic of 2008, our elected leaders in Congress and both the outgoing and incoming Presidents seem to have thrown moral hazard out the door. Incompetence does not deserve federal money, except in the gravest of conditions. Despite what you may hear from John Dingell and Carl Levin, American automakers do not meet this stringent qualification. The costs to ordinary workers will be more painful tomorrow if we do not act decisively in their economic interest today.

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Top five reasons the auto industry is insoluble

Posted on 21 November 2008 by Jacob Jasperson

With news in the past week that GM, Ford and Chrysler, the big three, would be seeking part of the financial industry bailout to stay afloat, one has to wonder what exactly is going on right now in this economy. This economy that was built on the foundation of “life’s tough, so what?” This economy that manifests itself in profits and losses, every man, woman and child for themselves, take what you can get and give nothing back. When did we let ourselves get to the point of having companies that were “too big” to fail?

I know there are many out there who feel the auto industry deserves to be saved; we can’t afford to lose all those workers, those workers can’t afford to lose their salary and allowing the big three to go under will devastate the economy.

All valid arguments, but I would like to add something to the debate. The auto industry is insoluble. I’m sure if you’ve been watching the news or reading a newspaper you’ve heard that argument. I would like to outline here the five reasons the auto industry in the United States cannot be saved.

1. In a global economy, let others do it better. Adam Smith would be rolling over in his grave if he heard about the auto industry in America. Capitalism is all about the most efficient producer producing (i.e. absolute advantage). Let’s be honest here, Japan makes a darn good car. And they can do it for relatively cheaper than here because they don’t have to pay union wages or benefits. This does not mean, however, that they cheat their employees or deny them a fair wage; for one thing, Japanese wages don’t have to include healthcare costs.
2. U.S. auto makers make bad cars. Gas guzzlers, poor designs, unreliable. The last few models to come through the big three have been better, but you can’t make up for years of poor manufacturing. People have a much longer memory when it comes to bad products. This is the U.S. auto industry reaping what they’ve sowed.
3. Pension costs add $2500 per car. I can buy a car cheaper than that! OK, maybe not, but still, you get the idea. Pension systems are terrible and not built for long term use. Any normal business would see that IRA and private accounts are clearly the way to go, and make the transition. The big three wasn’t able to do that.
4. GM has 7,000 dealers compared to Toyota’s 1,500. This goes hand in hand with my second point: not only do domestic auto makers make bad cars, they make them in all varieties. Toyota’s small numbers of large dealers make them better equipped to advertise, market, and sell their product. Why doesn’t GM simply close some of these stores? Many of them are protected by state laws, making them very expensive to close.
5. Ford burned through $7.7 billion in cash in the third quarter. Does anyone think another $25 billion is going to make any difference?

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Socialist bailout destroys America’s future A look at how the bailout package will compromise capitalism

Posted on 06 November 2008 by Adam Ryback

For many years Democrats have been working toward turning our free market economy into one that resembles a social market economy. However, we are now at a stage in our country’s history in which there is no longer strong and popular opposition to this trend. Thanks to legislation such as the Emergency Economic Stabilization Act of 2008 (H.R. 1424), both Republicans and Democrats are giving full support to socialist solutions to free market problems. They prefer to bail out companies rather than let them fail, even though the corporate executives in these firms made bad decisions. If I fail a course, the teacher doesn’t bail me out by just giving me the points I missed. Imagine if I was a physician who had received unearned grades. If this was to happen, I would enter the workforce unqualified and would be a danger to my patients. We are doing a similar thing with our economy. By bailing out bad businesses, we are merely allowing them to continue destroying our economy even further. This is the opinion of former Wisconsin candidate for U.S. Senate and businessman Ed Hou-seye, as explained by Marquette University history professor Stephen K. Hauser.

Hous-eye sides with the late Senator, William Proxmire, on corporate socialism which Proxmire strongly condemns. Hou-seye and Proxmire believe that if you are going to condemn socialism which favors corporations, you should condemn socialism which favors people, based on the fact that a corporation is seen as a private citizen by the law, as stated by Professor Hauser. Therefore, in order to be a capitalist nation, we must be against all forms of socialism, regardless of the outcome.

The issue that Proxmire was dealing with in 1971 was government bailouts for corporations like Penn Central, Lockheed etc. Hou-seye quotes Proxmire saying: “ ‘If we bail out one, where do we stop!’ Do we bail out every incompetent and inefficient American corporation, or only the big ones?’ ” The issue that we are dealing with now is similar to that of 1971. However, today we have made the jump to both bureaucratic and corporate socialism with the Economic Stabilization Act of 2008. Due to the encompassing nature of this bailout, it affects everyone. This bailout involves the assets of major corporations, which are in control of the mortgages of people’s houses. So now the government has control over businesses and the average person.

Some may argue that this bailout will merely just give the economy enough time to improve and then the government will back out. After all, doesn’t this provision exist in the bill itself? Well, that is a true statement, but does the government ever really step out once the crisis is over? In Stranger in the Arena, John Schmitz, a Marquette graduate and former presidential candidate, examines the Economic Stabilization Act of 1971, which involved price and wage controls during emergency situations. Schmitz says: “I wrote and spoke against this bill … several months later when we were still being assured they would never be used, that this was strictly a political ploy to embarrass the Democrats. Then in the summer of 1971 a price and wage freeze was imposed…” Lest we let history repeat itself, we should learn from our mistakes.

However, some people may still say that the bailout of 2008 is not socialist in nature. In response to these people, it is necessary to look at what socialism is. And who better to discuss socialism than Ferdinand Lassalle, a famous 19th century proponent of socialism. Lassalle proposed that “the major means of production and transportation would be owned and controlled by the government” according to Professor Hauser. Nevertheless, Lassalle would “still allow for elections and freedom of speech.”

Now is probably a good time to examine what the bailout says. We all know that the government is merely using its (or rather our) money “to provide authority for the Federal Government to purchase and insure certain types of troubled assets”, as the bill itself states. In other words, the government owns a portion of the collapsed businesses. Seeing as how the companies were bailing out businesses which were on the verge of collapse, we can just imagine how much money the government has in each of these companies. Logically, the government would want to manage certain areas of the business, seeing as how its moneya is at stake. For this reason, Section 104 of the bill provides for a Financial Stability Oversight Board. In other words, the government controls and owns the business. If we refer back to Lassalle, we can see many similarities.

However, this is not pure socialism. As mentioned earlier, Lassalle wanted “the major means of production and transportation” in the government’s hands. However, the concept is virtually the same when you consider the fact that Lassalle was from the 19th century, and industry was different than it is today. And we have to remember that this bill provides for partial control in the housing market. And that pushes our government closer to Marx than to Lassalle.

At any rate, this bill is not a product of capitalism. At best, it is crony capitalism. Even then, we would be using socialist tactics. Congressman Ron Paul was correct in saying we “can’t save free markets by socialism.” There is something distinctly socialist about this present bill. Since the Great Depression we have been moving steadily closer and closer to a social market economy. Now the government is ready to bail out any and all companies that show signs of failure. We should expect that as our economy continues to decline, more and more companies will require bailouts. And more and more people will also continue to need to be bailed out. Then American citizens will be totally dependent upon the government for everything, and therefore be virtually enslaved by the government. Socialism is an ever-increasing danger to our society, and unfortunately neither of the two major parties is willing to make a serious stand against it.

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AIG: Will one more wrong move make this right?

Posted on 06 November 2008 by Carl Mueller

The New York Attorney General Andrew Cuomo has recently announced that AIG will be withholding bonuses and severance pay from the company’s former CEO and other upper level ex-employees. The amount being withheld is roughly $600 million. Cuomo has cited that these expenditures are extravagant and that due to the company’s debt to the American taxpayer they must be stopped. AIG already spent around $120 billion of the government bailout they received and were threatened with legal action unless they stopped “extravagant” spending. While no one argues that the CEO and executives did not deserve the massive fees they aren’t getting, it is wrong for the government to pressure corporations to violate previously made agreements and more wrong for those companies to do so.

Cuomo was correct in his statements calling for a new incentive structure for CEOs. He wants a system where CEOs do not make so much that short-run profits outweigh their interest in long-run stability and success. While admirable in intent, pressuring AIG into cutting off promised pay is as short sighted and irresponsible as the activities and policies that helped create this situation. Cuomo’s belief that an obtuse executive’s excessive severance is extravagant has forced AIG into action. If he called for the cancellation of pensions or health benefits the public would be enraged, but his actions would be equally offensive to the American constitution in either case.

Making one person’s contract less valid than another’s is an affront to every citizen in a country where everyone is supposed to be equal. It is completely evident that the affronted individuals are the easiest to blame for AIG’s and part of America’s plight, but canceling the rights that they are promised in their contracts will lead America down a dangerous path while we are trying to rebuild our economy.

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The Community Reinvestment Act: Mixed results

Posted on 23 October 2008 by Remington Tonar

Over the past few months the American public has been inundated with information on the current financial crisis, which will surely burden global economies for years to come. Certainly, there are a multiplicity of factors that contributed to the economic downturn that we’re currently experiencing; one of these factors is the issuance of sub-prime mortgages. However, there is an aspect of the sub-prime crisis that has been discussed by numerous economists, but has not garnered much media attention. This aspect, is the attempt of the government (including both Republicans and Democrats) to alleviate racial and socio-economic discrimination by mandating that lending firms give out loans to sub-prime borrowers.

One often unmentioned way that government regulation contributed to the sub-prime crisis is the enactment of the Community Reinvestment Act (CRA) of 1977. According to Russell Roberts, a professor of economics at George Mason University, in 1995 the CRA was strengthened, leading to a massive 80% increase in the number of loans given out to lower income households. In the last few years of the 20th century, companies like Bear Stearns and Countrywide lent billions of dollars in CRA loans to sub-prime borrowers. Soon, these companies were securitizing these mortgages, packaging them into collateralized debt obligations (CDOs), in order to further capitalize on the government’s mandate – and increasing demand for sub-prime mortgages. Fannie Mae and Freddie Mac backed these loans, being pushed to do so by the Department of Housing and Urban Development, which in 1996 mandated that over 40% of their mortgage guarantees had to be issued to people or households who made below the median income in their geographical area. Eventually this mandate increased to above 50%. The Community Reinvestment Act, along with the Department of Housing and Urban Development’s mandate, forced lending firms to make loans that many knew might never be repaid. Coinciding with these regulations was the cultural push for higher home ownership percentages, i.e. demand for houses was increasing as well.

Of course, as demand for home-ownership increased, so did the number of sub-prime borrowers who sought mortgages to afford the houses that they felt society demanded they have. With the strengthening of the Community Reinvestment Act came a new push by the government to have lending firms issue sub-prime mortgages to make sure that all people, despite their income, could afford homes. Mandates by the Department of Housing and Urban Development forced Fannie Mae and Freddie Mac to finance these sub-prime mortgages, which the CRA had made possible. Bear Stearns, Countrywide, Fannie Mae and Freddie Mac are all familiar household names today. Many will blame the greed of these entities for the issuance of sub-prime mortgages and their subsequent securitization. Undoubtedly, greed played a huge part. However, beyond human avarice, government regulation also played a huge role in causing the sub-prime mortgage meltdown.

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Nowhere to run, nowhere to hide: How the economic crisis could affect Marquette

Posted on 09 October 2008 by Cathleen Bury

This past Friday afternoon, President Bush set a historic precedent when he signed into law the Emergency Economic Stabilization Act of 2008. The bill, referred to by many as the “bailout bill”, is the culmination of two weeks of bipartisan work in both the House of Representatives and the Senate. It allows the federal government to purchase up to 700 billion dollars worth of troubled assets, specifically mortgaged-backed securities, in hopes of stabilizing the economy and improving investor confidence. Ultimately, the government hopes to resell the purchased assets at a profit ensuring, according to President Bush, that “the cost to taxpayers will be far less than the initial outlay.”

But what exactly is “far less” than $700 billion? And as a Marquette student, who does not own a home nor have significant amounts of money invested in freefalling stocks, you may ask yourself, why am I being asked to pay to stabilize a situation in which I seem to have so little invested?

Many students at Marquette recognize the transient nature of their residence in Milwaukee, so they rent apartments, rather than purchase homes. They take on demanding course loads, which leaves few students time enough to maintain full-time employment. The lack of a full-time job certainly leaves most students without an excessive amount of disposable income, but it also means that they don’t have life savings, our future children’s college funds or our own retirement funds tied up in plummeting stocks.

So, as someone who is not watching their home value decline or their life savings evaporate, as someone who could have very well continued on with daily life oblivious to any sort of fluctuation in the stock market, turning on the television and hearing President Bush proclaim that America was in an economic “crisis” seemed a bit dramatic. Few Marquette students, if any, were glued to the television as the bailout bill was debated in the Senate and the House of Representatives, and very few singled out the bill as their sole topic of conversation. Blame what some students and faculty refer to as the ‘Marquette bubble’, but around campus, there did not seem to be an extreme amount of concern for recent economic events, and certainly nothing approaching panic.

However, the contents of this bill and the precedents its passage has set are of grave importance for all Americans. Never before have taxpayers been asked to become so deeply involved in the events of Wall Street. To many Americans, intense government participation in the private business sector seems fundamentally against the principles of capitalism upon which this country’s economic system are founded. Yet this bill forces all Americans to become invested, through their tax dollars, in the fates of private businesses, and in doing so sets a dangerous precedent for future levels of government involvement in the private business sector.

Most Marquette students are at the mere dawn of their tax-paying careers; for many, their investment in the federal government will only increase. With the federal government long operating in the red, the passage of an additional $700 billion bill adds further burden to the already unenviable position of young American taxpayers. However, the real issue is not the $700 billion check that Congress just forced taxpayers to sign. Unfortunately, this piece of legislature is a mere symptom of some fundamental problems in this country’s economic system.
According to Dr. Abdur R. Chowdhury, professor of economics in Marquette’s College of Business Administration, the current economic problems were created by inadequate regulation of private businesses. “It started with the housing market. Lenders gave out mortgage loans without looking at buyers income or wealth.” And although there were laws that regulated the actions of these lenders, “…they were never effectively enforced.” Thus many Americans were approved for loans on homes that they could not really afford. The lack of oversight allowed lenders to make these risky loans, which lead to an increase in demand for mortgages and an apparent increase in property value.

However, most lenders knew and chose to ignore the fact that the recipients of their loans would not be able to pay them back. These lenders accumulated millions of risky mortgages and used falsely inflated property values to back up the assets of many non-housing related companies. Many unqualified buyers soon began to default on their loans, increasing the number of foreclosures. Property values began to decline as more and more homes became available, leaving many homeowners owing more on their mortgage than their house was actually worth.
Furthermore, the investments backed by these mortgages began to collapse and affect assets of non-housing related companies, such as Lehman Brothers and AIG. The decline of mortgage-backed assets has drastically decreased these firms’ capital and liquidity. Across the country, banks have become wary of lending money and often impose extremely high interest rates on the loans that they do grant. The recent sudden withdrawal of credit has paralyzed businesses that rely on daily credit use, and driven many into bankruptcy. The entire financial institution is currently taking the hit for the reckless business strategies of mortgage lenders. The federal government has tried to remedy the situation by buying up the mortgage-basked assets from banks. This will release banks from their ties to these impaired assets and hopefully encourage further lending between banks to eventually stabilize the financial market. Ultimately, the sheer enormity of the $700 billion bailout bill is indicative of just how grave America’s economic troubles have become. To Americans heavily invested in the fate of the market system, the bill still does little to soothe the well-founded fears about their investments. To every American, the passage of this bill should drive home the message that this country’s future economic security is far from guaranteed.

Though many Marquette students are not part of the group that is heavily invested in the fate of the market, we will still see the effects of the current economic situation in many different areas. Marquette students nearing graduation will enter a job market drastically different from just five or ten years ago.

According to Chowdhury, “Business firms have been affected by the lack of liquidity. Firms will take on a waiting attitude; they will not invest, expand, hire.” Indeed, a government report issued last Friday reveals that September was the ninth straight month of job loss in the United States, and the largest monthly job decline in the past five years. This means that unemployment rates, already at 6.1%, will likely continue to rise. For companies looking to scale down their budgets, paid internships are usually the first things to get cut. That means many of the jobs Marquette students held last summer might not be available come this May, or might not be paid positions. Marquette seniors graduating this year will likely find themselves entering a job market with fewer opportunities and far more competition. This trend will also affect graduates applying to graduate school; as fewer people are able to find jobs, more and more will choose to go back to school, increasing competition for entry into the school, for scholarships and for grants.

One of the more immediate and most relevant concerns for many Marquette students will center on student loans. Recently, there has been a drastic decrease in the market’s liquidity. This means that banks are unable to or are extremely cautious about lending money, which is typical behavior in a recession. As credit institutions become increasingly wary of lending money, the opportunities for funding student loans diminishes. Students receive either federal loans, such as a Stafford or a Perkins Loan, or private loans, from private banks or companies such as Astrive Student Loans and Sallie Mae. Of the two, private loan institutions are the first to be affected by changes in the market. The federal government does not guarantee these private loans, so banks run the risk of students defaulting on their loans. Companies like Sallie Mae, which grants both private and federally backed loans, grant private loans by borrowing money from other investors and lend that money out to students. The companies make a profit when students pay back their loans plus interest.

However, with less money available for lending, there is widespread fear that the initial rate at which these companies borrow money will be higher than what they will earn from lending this money out to students. Investors in these private companies are becoming increasingly unconvinced that companies like Sallie Mae will be able to turn a profit, and thus increasingly unwilling to invest in them. Indeed, Sallie Mae reported over 1.5 billion dollars in losses at the end of last year and, despite a stronger performance this year, has still watched its market value plummet over 50 percent in the past four months. To address these investors’ fears and the financial losses these companies have experienced over the past months, many companies such as Citigroup, Bank of America and Wells Fargo have made large cuts in the number of student loans they grant, or have stopped making private student loans entirely. The companies that continue to grant students private loans are raising interest rates and tightening restrictions on which applicants receive loans, decisions that will no doubt affect Marquette students who rely on private loans.

However, even Marquette students who rely on federal, not private, loans to assist them in paying for tuition may eventually feel the effects of the nation’s economic situation. These federal loans are far more common than private loans. In some cases, the loans that Marquette students receive passes directly from the federal government to the university and then to the student. In 75 percent of cases, students receiving a federal student loan receive a second type of loan, one that is funded by private capital and made available through private companies such as JP Morgan Chase or Citibank. However, the federal government guarantees these loans, so banks assume no risk of student default. Furthermore, the federal government guarantees the interest rate on these loans, so any change in the rate would require a change in federal law. This further removes their interest rates from influence of the market, and makes it less likely that student with federal loans will see increased rates. Last year, Congress approved legislation to secure money for federal student loans through the 2009-2010 academic year, so students relying on these loans appear to be safe for now. However, if the national trend of decreased capital availability continues, even federal loan lenders could find themselves unable to secure money for student loans. For Marquette students with federal loans who will not graduate before July 2010, the fate of the federal loan program remains an issue.

The recession will undoubtedly be felt right here on campus as well. Many states are already trimming down educational costs by cutting courses, programs and other student activities. As a private university, many of these government cuts will not have an effect on Marquette. However, that does not mean the university will not be influenced by market changes. On the contrary, Marquette’s status as a private university requires that it rely heavily on private donations. Though many of the large donations that we hear about—the $25 million and $50 million donations to the engineering college this past year, for example—are made in anonymity, it is important to remember that these donors are not just nameless entities, infinitely wealthy and impervious to economic changes. They are real people, Marquette alumni and friends, and their gifts create the experiences that all current Marquette students share. Their donations cover the 38 percent of the cost of education not covered by yearly tuition. They have created and continue to sustain scholarships like the Raynor and Ignatius Scholarship, as well as Marquette’s student-athlete scholarships. These donations also contribute to campus safety programs and access to and improvement of student computer labs, as well as sustain numerous extracurricular activities.

From just that brief, incomplete overview of how donations benefit the lives of Marquette students, it is obvious that the extent upon which the university relies on the generosity of these donors cannot be overstated. As the country’s economic situation continues to decline, these donations will unquestionably drop. Speaking at the MUSG-sponsored forum on September 30, Father Wild acknowledged the donors’ vital role in maintaining and developing the university, and admitted that the “environment for fundraising is a lot tougher than it’s been.” To the many Marquette students who benefit from the university’s current donor-sponsored programs, that is an extremely concerning statement. Obviously, the university will have to respond to the decrease in donations, and how they address the situation will assuredly impact the lives of students However, Marquette University has weathered troubled economic times before, and for all those students anxious about how the university will address the problems of the coming recession, it is reasonable to examine how the university handled itself in a previous financial crises.

In 1931, the university was set to celebrate the 50th anniversary of its founding. Father William Magee, president of the university since 1928, was in the midst of planning a large celebration and a fundraising drive when October 24, the infamous black Thursday, came and sent the country spiraling into what is now known as the Great Depression. Federal student loans as most Marquette students know them had not yet been created, and as more Americans fell upon hard times, many families could not afford full tuition. Thus the number of full-time Marquette students decreased. The rise in unemployment also meant increased competition for any work, and the part-time jobs once available to students became scarce. As private donations used to fund undergraduate scholarships decreased, the awards and the students who relied on them disappeared from campus.

The decrease in students put further financial strain on the private, tuition-dependant university. Aside from canceling both the celebration and the drive for funds, Father Magee was forced to take other actions to keep the University from closing. Cuts were first made in the arts; the College of Music was officially closed in the summer of 1930 and the radio station disappeared in 1934. Student publications, including the Marquette Tribune, the Hilltop and the Marquette Journal were more than once threatened by a lack of funding, and all were forced to significantly reduce their size. Periodical subscriptions and the amount of new book purchases in the library were slashed, as were faculty salaries. As the budget grew increasingly tight, Marquette began to hire more and more Jesuit priests to save money on faculty salaries.

Since the nature of Marquette University as a private, tuition-dependant institution has not changed, previous responses to an increasingly tight budget are still relevant to students today; if the University falls upon hard times again, students can expect to see the same sort of actions taken in the past. Ultimately, it seems increasingly unlikely that students and the university will remain unaffected by the current economic troubles. Certainly those poised to graduate and move beyond the Marquette campus will be forced to address those troubles sooner than some other students. However, this recession will eventually have profound affects on all of us, and the university, as well as each individual student, must be prepared to address what are sure to be difficult times ahead.

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National deficit: it’s not fat, it’s husky

Posted on 24 September 2008 by Carl Mueller

According to polls, the economy has become the single most important issue in the upcoming Presidential election. Calling economics a single issue is as insightful as saying the most important factor in the War on Terror is “strategery,” but due to media coverage of today’s horse race politics, oversimplification has become the norm. The War on Terror has increased the budget deficit to record levels, the price of oil and other commodities have greatly risen, the housing market continues to be stagnant at best, and to add to an already floundering financial market Lehman Brothers declared bankruptcy, AIG received an enormous federal bail-out, and Merrill Lynch has been bought out. All of these things are part of an ever-growing economic crisis within America that has finally overtaken the American voter’s concern over which candidate would be the better companion for a pint of pale ale. The part of the economy that should concern the students of Marquette over all others is one that did not make it into the speeches of Presidential hopefuls at the DNC or the RNC. The largest problem facing American college students is one that might encourage them to take more than the required amount of foreign language: the growing national deficit.

As a reflection of the overall concern with the single issue of American economics, the University recently hosted an economics conference as part of a series called “The Way Forward.” Two speakers, Dr. Kevin G. Quinn and Dr. Abdur Chowdhury, spoke about various economic problems of today focusing largely on the current economic crisis, labor market, economic incentives, and need for environmentally friendly energy reform. They spoke in favor of more funding for post-secondary education and incentives for innovation, but overall stressed the need to look to the future and consider the growing problem of the American deficit when making policies meant to fix the American economy.

Many economists have deemed the recent takeover of Freddie Mac and Fannie Mae as necessary but also as setting a bad precedent for other corporations in the American economy. As exemplified by the loan given to AIG as a bail out at taxpayers’ expense, our government has had to bail out major corporations to prevent near economic disaster. These interventions allow corporations to engage in risky business practices while assuming that the government and thus the taxpayers have their backs. While both Presidential candidates have indicated that they have solutions to these problems, what really applies to students is whether or not their economic policies will keep the deficit small enough to ensure that America has the actual financial ability to bail out our mortgage markets in the future if necessary. As our nation sinks further into debt every day and as we lose more and more of our financial institutions, America becomes a less attractive place to invest. Without investors, America will lose the funding needed to continue bailing out domestic financial interests, as well as the consumer confidence keeping the economy afloat.

Instead of focusing on the economic merits or drawbacks of economic bailout policies, what truly must be focused on is the nation’s ability to maintain itself fiscally in the future. John McCain said in his GOP Presidential nomination acceptance speech that he will not be “leaving our problems for some unluckier generation to fix,” but he failed to specify exactly what that meant. Did he mean he will slow down entitlement spending so that future Americans will be able to receive educational loans to keep America’s post-secondary education system running and accessible to a large portion of the population, for example? Hopefully he meant that he will be willing to run this country responsibly in terms of keeping tax rates low enough so that the American economy can continue to function. The current levels of debt accumulation in this nation are not sustainable, as the Marquette community heard from the visiting panelists from “The Way Forward.” The current students of Marquette and all students nationwide will be paying the costs America is currently incurring. Issues of national security and the varying aspects of the economic crisis may seem poignant in the presidential race leading up to November, but students today should be most concerned with the issue of the national deficit.

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Stop keeping money under the mattress

Posted on 24 September 2008 by Jacob Jasperson

Financial instability, turmoil in the market, rising prices, falling stocks, mergers, foreclosures, the Four Horsemen of the Apocalypse; all signs of a market on the brink of the R-word. We won’t say the R-word here at “The Warrior”—it’s never a good idea to mention it out loud. But if you watch the news at all or listen to the radio or really are alive in any way you’ve heard analysts mention their likely dooms day scenarios.

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Most economists would agree that we are currently not in a recession. The generally agreed upon definition of a recession is an overall slowing of the economy. We run into a few problems here because there are many measures of the economy and hardly anyone can agree what a slowing is. So we turn to the National Bureau of Economic Research, a non-profit, non-partisan organization which assigns dates and lengths of recessions in U.S. history. They define a recession as, “a period of declining output and employment.” Whether we are currently in a recession, sliding into a recession, or coming out of a recession is really all semantics at this point; if you polled Americans they would all agree the economy is somewhere they don’t want it right now.

Therein lies the problem: consumer confidence. One of the key indicators of economic well-being, it has been far from stellar the past few years. Blame it on whomever you like, but it needs to change. We at “The Warrior” want it to start right here at Marquette. It’s no secret that the key to success is buy low and sell high, and what better time to buy than right now. Stock and home prices can’t get much lower, and every indication is pointing towards the economy rebounding in a few years or so. That makes this the perfect time to invest. But what to look for in an investment?

Real estate, despite what the market experts are telling you, is a good investment opportunity. There is a limited supply, and even though demand is down now it has to pick up eventually. Real estate is a great long term investment; that is if you have a couple hundred thousand dollars lying around. On second thought, don’t invest in real estate unless you have a lot of capital.

When looking for stocks, you want a stock with a high yield and low price. You also want a stock that gives out dividends. Why? The same reason money now is worth more than money in the future – you can reinvest. Diversify, diversify, diversify. You don’t want to put all your money in tech stocks and then find out that Silicon Valley burned down last night.

Finally, look down the road. It’s not a bad idea to start a Roth IRA account now, even if you can only afford to put a little in at a time. That’s the beauty of compound interest.


Don’t listen to CNN or CNBC all the time. Remember, they get paid to tell people what they want to hear, and for some reason people want the end of the world scenario right now. You can get a leg up on everyone else if you start now.

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Fair Trade Coffee: social movement, or economic illiteracy?

Posted on 08 November 2006 by Charles Rickert

For me, it is espresso. For coffee farmers, it may be a living wage. For many students, Fair Trade coffee is the prescription to cure poverty throughout the world. Like all prescriptions, the ingredients and side-effects of the Fair Trade movement are clearly written on the label but few people bother to look.Before 1989, the International Coffee Agreement kept the price of coffee beans high through export quotas and limited production. When the agreement collapsed, farmers began producing coffee in record quantity as a flagrant act of capitalism. Brazilian and Vietnamese coffee growers began using more machines and low-cost methods to yield greater efficiency. As a result, the price of coffee beans fell by over 50 percent because of technological advances and the laws of supply and demand.

When supply is greater than demand and you cannot contend against a low-cost competitor, you have three options: exit the market, invent a new strategy or be rescued by a bureaucratic organization.

Enter Fair Trade coffee, the quixotic certification effort with a heart of gold. TransFair USA, the only Fair Trade coffee certifier in the United States, promises farming cooperatives (organized farmer groups, almost like a union) a magnified price of $1.26 per pound of coffee beans ($1.41 per pound if grown organic). The advantage of this price to cooperatives is undeniable. All the proceeds are given to the cooperative and each member receives one vote to decide how the money shall be distributed. Although individual farmers are not guaranteed a definite portion of the revenue, the results of Fair Trade selling are community development, higher standards of labor and lower environmental impact.

To become a certified fair trade coffee grower, farmers must first collectively pay the Fair Trade Labeling Organization (FLO) between $2,000 and $4,000, followed by annual recertification fees. According to TransFair USA’s Web site, these costs can be a “barrier to entry into the Fair Trade system” for small cooperatives but can be partially lowered through grant donations.

While cost is a temporary barrier to Fair Trade, failure to join a farming cooperative is a permanent barrier. The FLO will not certify standalone farms, even if they are family-owned. On the other hand, if your cooperative operates on a tribal basis, like in Africa, you are also excluded from Fair Trade. Only democratic cooperatives can apply.

Further discouraging a farmer’s individual initiative is the practice of mixing the coffee beans of one farmer with those of the other members of the cooperative. If Farmer X implements quality improvements to his growing technique, the benefits are muted because his output is combined with that of his peers. Beyond that, it does not matter if a Fair Trade farmer’s coffee is eventually sold by retailers for $10, $15 or $20 per pound, the farmer’s cooperative can and will only receive $1.26 per pound. (Remember, Fair Trade coffee does not put additional money into the pockets of individual farmers, but only into the cooperative and never more than the minimum floor price).

Another criticism of Fair Trade coffee in America is that the social movement has sold out. TransFair USA spent over $1.2 million on marketing and product education in 2004, according to their Form 990. Much of this money was spent promoting themselves to multinational corporations and attempting to convince consumers that it is impossible to be socially conscious without being “Fair Trade.”

Of course, to imply that any product without a “Fair Ttrade” label must be exploitive is dishonest. In fact, because Fair Trade prices subsidize inefficient suppliers (keeping them in the market), this only prolongs the suffering of farmers who do not qualify for Fair Trade’s rule.

For all the hype, hope and red tape surrounding Fair Trade coffee, the economic realities remain the same from the beginning. The world is still producing more coffee than consumers are drinking. Fair Trade ignores supply and demand, leaving the global price of coffee depressed because of overproduction.

A large regulatory body that implements price floors, by any other name, does not guarantee fairness, freedom or universal prosperity.

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