Students adjust to economy
November 1, 2008
As the effects of the housing crisis and the international economic crisis ripple through everyday life, students and faculty at Sacramento State are forced to change lifestyles. For some, this means driving less; for others, the changes are more severe.
Many students are finding they have to spend less to survive these days.
Matthew Harris, undeclared freshman, said his spending habits have changed recently.
“I don’t spend money at all anymore,” Harris said. “The only things I spend money on are school and food, and only when necessary.”
Harris is not the only student changing spending habits. Edidiong Uwan, co-advisor of Green Sting for Student Life and Services, said she used to buy lunch on campus.
“I try to bring a bag lunch to school now,” Uwan said. “I see lots of students doing the same thing. People are struggling.”
Melissa Cammack, senior biochemistry major, said high gas prices have made it more difficult for her to get around. She now uses the bus to get to school.
High gas prices have affected students in many different ways. For Anthony Gragg, junior liberal studies major, the price of gas forced him to quit his job in Rocklin.
Harris said the price of gas has caused him to stop hanging out with his friends.
“I used to drive to Elk Grove two or three times a week,” Harris said. “Now, it’s like once every two weeks.”
Kristin Van Gaasbeck, associate professor of economics, said the recent drop in oil prices is a good thing for the economy for several reasons.
“The falling gas prices help alleviate concerns about rising inflation,” Van Gaasbeck said. “One of the worst situations is to have a recession with inflation, because then it’s not really clear what the government’s appropriate response is.”
Falling oil prices also help to lower food costs as well as other products that are shipped around the country.
For many students, the tough economic times and slow job market mean staying in school longer.
Ta-Chen Wang, assistant professor of economics, said there is a counter-cyclical effect on student enrollment when the economy is slow.
“When things are good, graduate numbers drop,” Wang said. “When things are bad, enrollment numbers skyrocket. I would expect to see more students enrolling all over the country.”
Uwan said many people she knows are planning on staying in school.
“People realize that when they graduate, there are no jobs available,” Uwan said. “A lot of people are applying for graduate school right now.”
Van Gaasbeck, said the labor market tends to lag behind what is happening in the financial sector.
“Unemployment is rising right now,” Van Gaasbeck said. “It usually will not peak until near the end of a recession.”
Economists, including Wang, are predicting a worsening economic recession. Recessions are generally identified by two consecutive quarters of negative economic growth as measured by the gross domestic product, or GDP. The GDP is the total market value of all goods and services produced in the country.
Currently, the GDP is still positive, but not for long, Wang warns.
On Oct. 20, several Sac State economics professors held a discussion about the economic crisis. Wang presented a graph showing the predicted GDP going negative over the next several quarters.
A recent poll by CNN showed that six of 10 Americans surveyed felt that a depression was likely or extremely likely. Prolonged recession could indicate a depression.
Harris said he feels it is likely the U.S. will enter into a depression in the near future.
Gragg said he feels the country is not quite to the point of worrying about a depression, but it is getting close.
Wang disagreed, citing U.S. regulations enacted during the Great Depression that will prevent a depression from happening.
“If you adjust for inflation, the Dow Jones would have to reach about 2,000 points to equal the Great Depression,” Wang said.
Van Gaasbeck said many professors are likely being affected heavily by the burst of the housing bubble.
“Many instructors were recently hired at Sac State, and many, myself included, probably bought homes in the area during the housing run-up,” Van Gaasbeck said. “I suspect that some of them are in a better boat than others, but depending on how much they were gambling on property values increasing, they might get stuck.”
Van Gaasbeck said it is likely the numbers of instructors dealing with mortgage-related problems roughly mirrors that of the nation.
Yan Zhou, assistant professor of economics, said that the housing crisis is a realignment of prices.
“If you are talking to an appraiser, they will tell you this is the way things should be,” Zhou said. “Prices were ridiculously high (but) now they are starting to come back to normal.”
Wang said the drop in housing prices was a distributive effect.
“Now prices are more affordable,” Wang said. “People who couldn’t afford housing because of the previous boom can afford it now.”
Causes of the economic crisis and the housing crisis are complex. Part of the problem has been a relaxation of regulations by government agencies, allowing for sub-prime mortgages to be offered. For many, these were mortgages that allowed them to own a house with little to no down payment, and very loose restrictions on income. In some cases, income was not verified at all.
Uwan said several parents of people she knows have lost their homes, or are in danger of doing so.
“They were sold hopes and dreams and wishes and now they are regretting it every single day,” Uwan said. “They are saying it is the worst mistake of their lives and they are trying to find a way to get out of it without ruining their credit.”
Many students blame the war in Iraq for having a detrimental effect on the economy.
“The Bush Administration has been too focused on the war in Iraq and not domestic issues,” Gragg said.
Uwan said she feels the U.S. financial problems began with the war and that the war has caused the problems to grow.
“The war is kind of at a standstill,” Uwan said. “We can’t stay there forever; enough is enough.”
Van Gaasbeck said it is likely that the spending for the war effort has actually helped to keep the impact from being greater.
“The majority of defense contractors are U.S. companies,” Van Gaasbeck said. “The negative consequences are more long-term. The U.S. is borrowing money from foreign countries to finance the war, and this limits the country’s ability to alleviate the problems at home in the long run.”
Wang said he does not think there is a causal relationship between the economic crisis and the war effort.
“While it isn’t the best way to stimulate the economy, the war is not the cause of the crisis,” Wang said.
The future will likely hold increased regulations on lending institutions. Wang said even with more regulation, financial institutions will find ways to get around the new regulations.
The government bailout of several major financial institutions is being viewed as a proactive step to slow the damage being done to the economy, and stimulus packages could help to restore consumer confidence in the market and increase spending, Wang said.
Derek Fleming can be reached at [email protected]