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2008 Economic Engine Breakdown: Through Prisms Of An Economic Journalist
During the height of the 2008 financial crisis most of the western states were in a much greater crisis, in fact, at one point California virtually declared an economic emergency. This said, it may be impossible to mention an economic ‘state of despair’ without mentioning the ‘state of California’: the California economy, during the nation’s recent economic nadir, resembled something of a Third World country. Wave after wave of state budget cuts and gubernatorial issues relegated the state’s economic engine to complete shambles. If you were to visit the state during the height of the economic breakdown of 2008, as I had, you’d noticed an all out “fist fight” at the top of the administration; which then trickled down the California pipeline. What was all the fuss about? The fuss was all in the name of ameliorating the dire economic situation in the state. During this period California’s economic peril—combined with both a national economy at its nadir and a moribund labor market at the state level—appeared destined for collapse. Even at the unskilled level, the California labor market was so saturated that you had a better chance, at that time, of getting struck by lighting than finding employment.
As I drove from city to city, during the height of the panic, I began to notice an alarming trend about the golden state: the vast number of unemployed intellectual workers. Fact is, whenever a newly graduated USC, UCLA or UCSB college student-armed with intellectual skills—can’t procure work, something’s vastly wrong with the system. “I think that I’m just gonna have to just go to graduate school” says one UCLA student “I’ve emailed my resume to well over 30 companies and still no answer.” This shouldn’t come as a surprise to any one, the state of California is home to many great universities but with a bevy of U.S companies outsourcing and off-shoring its businesses—much to the mirth of many—a lot of good intellectual jobs have been placed overseas.
In a globalization world—a world were American college students don’t only compete with each other, but with a bevy of Chinese and Indian students on the other side of the world, the cries that I heard from many students during the height of the economic breakdown were cries of concern: “What went wrong?” could be the mantra of the entire crisis—and it was in direct reference to an advanced economic engine’s inability to provide well paying jobs to the people who needed them the most. Put simply, a “twenty-something” fresh college-aged graduate need a good paying entry-level job. For more reasons than most, a good paying entry-level job justifies college as a human capital investment. What I observed in San Diego, L.A and Santa Barbara counties was a saturated labor market that was relegated to mediocre temp labor.
This said, out of all the states in the union, California’s economy seemed the most affected by the economic breakdown. How could the once great ‘state’ of California progress to a ‘state’ of economic despair? It’s called “bad economics;” this “bad economics” graced the state’s economic engine from its incompetent state leaders down to its municipalities. Because of California’s history of “bad economics,” the economy has been relegated to being fragile: its real estate market was hit very hard in the subprime bubble burst, municipals governments were scrambling to find monies anyway it knew how (high property taxes, red-light traffic cameras)—California in 2008 was a complete economic mess.
California was slowly becoming the land of “haves” and “haves not”—that is, in most major California cities, it wasn’t uncommon to see poor people living off the “hand me downs” of the wealthy. The Great Recession in the state of California had, for better for worse, created a kind of divergence in economic status, whereby people of lower economic standing were caught in a kind of blissful wonderland of vagabond. There existed very few places that could compete with California’s mendicants. Anytime you have a state filled with beggars, it can only mean two things: 1) Great weather; and 2) A saturated labor market; two hallmarks of the state of California at the time.
On the supply side of the labor market, during the height of the recession, California’s small businesses in very well-off zip codes, wasn’t so aversely affected. Because so many well-off people were liquid enough to circumvent recessionary hardships, most small businesses appeared immune from the shocks of the recession. In essence, the wealthy zip codes of L.A. and Santa Barbara Counties bypassed the true ill effects of the national economy at its nadir—and it could be attributed to this latent competitive advantage. Many middle class Black and Mexican Americans got squeezed out and if it weren’t for their hard work ethics and creative entrepreneurship, the state could have seen an even dire situation. The hardest hit segment of the recession seemed to be the lower middle class segment who—prior to the economic low point—had diligently worked hard to move up the socio-economic ladder rung. This climb in socio-economics fallaciously came by way of purchasing a home during the peak of real estate bubble that cajoled them into the belief that they could afford the high mortgage payments: real estate foreclosures in certain pockets of Riverside and Los Angeles counties reached epic proportions. And as an economic journalist on an economic odyssey—to discover the true meaning of unconventional economics—it became very apparent to me that what I was witnessing, indeed, wasn’t real in a conventional economical sense.
In economics, the path to least resistance is sometimes a prescription for disaster. Whatever banking lending system existed in California, it’s very safe to say, it wasn’t traditional. Although conventional mortgage lending moves at a snail’s pace, the labyrinth of paper documentation acts as a safe guard to the commercial banking system. To be precise, commercial lending isn’t some direct right given to everyone that wants the American dream, it’s an explicit privilege provided to the very few “would be” homeowners that sacrificed consumer spending to achieve the ultimate price. As I drove by cocoon after cocoon, I couldn’t help but feel a bit of empathy for the credulous many, in search of gold, that fell for mineral pyrite.