Prof. Ellis Tallman, Economics

Living up to the current economic challenge gives this generation an opportunity to exceed the achievements of their parents and grandparents.

Each generation faces its own watershed macroeconomic events that shape their psyche, their intellectual viewpoints, and their goals. For my parent's generation, the Great Depression and the Second World War were by far the most important. Nothing comes close to those events in the past 75 years. The oil shocks of the 1970s and the related recessions of 1973-75, 1980, and 1981-83 - were serious and painful, but not like the Great Depression. Yet, the current financial market crisis and the related recession of 2007 combine to form an enormous macroeconomic challenge for this generation of college students. With each passing week, the current crisis looks increasingly ominous. The recession will have a profound impact on the economic opportunities available for this generation of student.

History can provide some perspective on what is happening now. During the Great Depression, home foreclosures were rampant, and the unemployment rate for 1932 (23.6 percent) remains the measure of economic distress. The long economic contraction shaped how that generation's values. For example, that generation does/did not like to be in debt -- they feared bankruptcy. They would accumulate savings in order to buy goods, and rarely buy goods on credit. A person can take this viewpoint too far; there are good reasons that we borrow when we are younger, and save more when we are older. On the other hand, the current financial crisis is all about debt, too much of it, and not much of it being good. And as a result, there won't be much new lending available for a while.

The current crop of college students will confront the weakest economy since the 1930s. The term "crop" includes freshman class through the senior class. At this point, the ongoing economic recession will likely surpass the 16 month duration of 1981-83, currently the longest post-World War II contraction. There are no quick fixes.

Some adverse direct effects of the financial crisis are predictable and immediate. First, college financial aid will be harder to get. Colleges and universities rely on financial gifts from benefactors and flows from their endowments in order to provide financial assistance - both of these sources are presently weak. Federal government initiatives to increase money in the Pell Grant program should soften the contraction, but there will likely be a net reduction available financial aid. Secondly, the 2009 job market could be the weakest in memory. Few main stream industries are doing well. Housing construction has contracted for years, and home values continue to fall. Retailing is normally a volatile business, but until things settle out - consumption stops declining -there will be numerous, high-profile bankruptcies in that industry. Automobile manufacturers - both foreign and domestic - are struggling to find ways to survive the collapse in car sales. The financial industry, the prime suspect for the credit crisis, rather than searching for near-term profitability, is bracing for further losses and hoping that the losses are not so large as to make them insolvent. There are few prospects for widespread new hires in these areas.

Economics is about incentives; in some industries, we can bet that the rules of the game will change (for the better) and it will affect incentives. The financial tsunami has wiped out the capital of some financial institutions, reduced the financial rewards of financial players, and at the same time raised the relative rewards to other fields. Willem Buiter, Professor of European Political Economy at the London School of Economics, made the observation that the financial crisis will perhaps convince a number of intelligent college students NOT to study financial engineering and instead to study science or other engineering. That way a lot of good human capital, which may have previously gone into financial engineering, will instead be devoted to the production of knowledge or new useful products - activities with a positive "marginal social product."

Following that theme, there may be new opportunities in the sustainable energy initiatives and other environmental proposals supported by the new administration. Oberlin College students with those interests may find more opportunities now than in previous years. Of course, that is just a conjecture. Another conjecture is that the effects of the debt implosion from this credit crisis will influence the next generation to adopt a more conservative attitude toward consuming and being in debt. There are many reasons, but one has to do with government debt. With all the bailout spending, and new federal spending and tax initiatives, the next generation will inherit a huge public debt, which will be a challenge to service.

In his moving inauguration speech, President Obama said "..our time of standing pat, of protecting narrow interests and putting off unpleasant decisions -- that time has surely passed. Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America. For everywhere we look, there is work to be done."

It is a compelling statement and a realistic vision. And it places a great challenge upon this generation of college students. Living up to the challenge gives this generation an opportunity to exceed the achievements of their parents and grandparents. And soon it will be time to get to work on it.