Great column in yesterday's WSJ by James Stewart about why we should be thankful for Henry Paulson, Tim Geithner, and Ben Bernanke. Stewart's message in a nutshell: Many of us seem to have forgotten how close the economy came to a total meltdown last fall. The Paul Krugmans and Glenn Becks of the world are making emotionally charged arguments (and collecting huge salaries and speakers fees, I might add) second guessing the bailouts and stimulus packages respectively. But guess what? The Bush and Obama economic teams made the right calls on the biggest issues. Without the bailouts 2009 would have been an economic rehash of 1930. Without the monetary and fiscal stimulus (from both Bush and Obama) unemployment would easily be 12 or 13 percent. Stimulus packages in other countries also have been effective; the global economy is starting to recover. Money quote:
We're a lot better off today than we were a year ago. This week I'll be giving thanks for that.
I do not normally link to op-eds by politicians, but last week's WSJ piece by GOP Reps. Hensarling and Ryan is noteworthy for some of the points that they make about government policies and incentives. Hensarling and Ryan are pessimistic about the recovery because (1) the Obama stimulus package did not create any new incentives to work or invest (of course neither did the Bush stimulus a year earlier), (2) the Bush tax cuts expire in 2011, (3) in the takeover of GM and Chrysler the government stiffed secured creditors (e.g., bondholders), and (4) expected future taxes associated with health care and climate change legislation. The combination of higher taxes, uncertainty about regulatory outcomes and massive deficits imposes a huge drag on the recovery. On top of that I would add these considerations: small and medium sized businesses with solid financials still cannot get access to credit and households are reluctant to take on more debt. What Hensarling and Ryan do not mention is that most of the federal stimulus has yet to arrive and the Fed is keeping short term interest rates quite low.
With unemployment at 10% despite the biggest stimulus package ever, there is more and more talk in DC about a second stimulus focused on job creation. In the last few days WSJ has run two op-eds from very highly respected economists that approach policies to create jobs from very different frameworks. Alan Blinder of Princeton (and former vice-chairman of the Fed) examines public employment and a tax credit for new jobs. Blinder points out that the tax credit would be very hard to implement because there would be countless ways for employers to game the system (e.g., fire workers and hire them back). Michael Boskin of Stanford (and former chief economic adviser to Bush 41) advocates a six percentage point cut in FICA tax. Boskin claims this will create much more stimulus than the package approved last February at half the cost.
1) NC State was not included in the rankings because we had an insufficient response rate to the online survey BW conducted of recent graduates and soon-to-be graduates. An open plea to our MBA students and alums: please make sure the MBA program office has an email address that you check regularly. With our growing full-time program, we are likely to be eligible for more rankings (e.g., Business Week full-time).
2) Part-time programs across the country are having difficulty attracting students due to decreased employer support for educational expenditures. The BW article also notes that part-time students at most schools are frustrated because they do not have access to career services and on-campus recruiting. Unlike most part-time programs, NC State's working professional MBAs take MBA 500 just like the full-timers and also have full access to information sessions and on campus recruiting.
We will be talking about the Fed in MBA 505 this coming week. The big question right now, according to this recent WSJ article, concerns when will the Fed start raising interest rates. The fed will be looking at GDP, unemployment and inflation signals. Before raising rates, the Fed is likely to send out signals weeks, if not months, in advance. Next year's midterm Congressional elections will not make the Fed's job any easier. It is quite possible that the Fed will need to raise rates some time in 2010 to defend the value of the dollar and send a strong signal about its commitment to fight inflation even though unemployment is likely to be 8-9 percent when the rates start going up. Congress may choose to challenge the Fed's independence in such a situation.
Interesting column in today's NYT from David Leonhardt about the prospects for a robust recovery. Most prognosticators (yours truly included) are not very upbeat about the odds of a quick bounce-back. Many solid businesses are still having trouble raising funds and the bailouts are unlikely to last forever; so what will kick in? Leonhardt cites four possible scenarios for a GDP jump start: (1) China revalues its currency and encourages more domestic consumption; (2) American shoppers cannot stay hunkered down forever; (3) more stimulus (next year is an election year); and (4) the unknown -- no one saw the internet coming in the 1990s, after all. The latter angle is the one that I find most intriguing; we should never underestimate the impact of innovation and technical change.
Steve Allen is Associate Dean for Graduate Programs and Research in the College of Management at NC State University. He has appointments in the Department of Economics as well as the Department of Management, Innovation, and Entrepreneurship. Steve also is a Research Associate of the National Bureau of Economic Research, a non-profit research organization located in Cambridge, Mass.