KSU professors weigh in on state of U.S. economy

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Housing prices, job growth and uncertainty continue to drag economic recovery KENNESAW, Ga. (July…

Georgia (Jul 15, 2011)Housing prices, job growth and uncertainty continue to drag economic recovery

KENNESAW, Ga. (July 15, 2011) --- Low housing prices, anemic job growth, government debt and uncertainty about the future will continue to drag the U.S. economy as it enters the second half of 2011 and into next year, according to economics professors from the Coles College of Business at Kennesaw State University.

According to Govind Hariharan, chair of the Department of Economics, Finance & Quantitative Analysis; Don Sabbarese, director of the Econometric Center; and Luc Noiset, director of the Center for International Business, economic growth over the next year and a half is looking bleak. The KSU economists are concerned about the laggard pace at which jobs are growing.

“The economy is mired in an eddy,” says Hariharan. “Two years after the official end of the recession, economic growth has not been sufficient to spur significant job creation or reduce uncertainty about the direction of the U.S. economy. As President Obama and congressional leaders hammer out a deficit-reduction deal and as the Fed contemplates a third round of quantitative easing, the economy continues to be a big story.”

Here is what the Coles College of Business economists have to say about the state of the economy:

 

WHAT CAN THE GOVERNMENT DO AT THIS TIME TO STIMULATE THE ECONOMY?

Hariharan: “Infrastructure and trade treaties are the key. An additional component that often is a part of trade treaties but needs to be highlighted separately is a jobs treaty. Under the jobs treaty, the net addition/subtraction of jobs at various levels in various sectors with specific timelines needs to be developed and publicized explicitly.”

Sabbarese:“Put short- and long-term policies in place to control government spending and debt. Send a clear message that the government is not going to increase taxes in the form of capital gains and income taxes on people with incomes above $250,000. Many of these people are business owners and job creators. Unfortunately, there is already too much legislation on the books (health care legislation and the Dodd-Frank Wall Street Reform and Consumer Protection Act)that will increase the uncertainty and cost of doing business. Put more emphasis on private sector job creation and less on government jobs.”

Noiset: “There is not much more that the government can to in terms of fiscal or monetary policy to encourage growth. The best thing that the government can do is for politicians to negotiate a real fix to our long-term debt and deficit problem. That would give all the players in the economy a renewed faith in the future of the U.S. economic system, and it would help to overcome the fear and uncertainty that the 2008-2009 collapse created.”

 

WHAT NEEDS TO HAPPEN FOR THE ECONOMY TO GROW FASTER THAN IT IS CURRENTLY GROWING?

Hariharan: “Exports, exports and more exports! The newly emerging markets continue to be the silver lining. Trade agreements with many of these countries, including South Korea, are still pending. If U.S. consumers don’t spend and the federal government cannot spend, then the only place for business investments to grow and drive GDP is exports.”  

Sabbarese: “Government policy in the form of more regulation, excessive debt levels, potential for higher taxes and higher inflation continue to concern business leaders. These factors make it very difficult for businesses to make long-term decisions to hire full-time employees. If they can’t determine the cost of doing business in the future, they can’t make longer-term decisions.”

Noiset: “There needs to be a real spark that captures the public's imagination. For example, a strong pop in housing prices in a significant number of markets could be the spark that lifts people’s expectations and gives them faith in the future again.”

 

IS INFLATION A CONCERN?

Hariharan: “While energy and commodity prices due to global/emerging economy demand are a concern, they are more of a concern in emerging markets than here in the U.S.”

Sabbarese: “It’s always a concern. It may not be a problem this year, but with all the unprecedented Federal Reserve increase in bank reserves in the last two years, it will eventually become a problem. It hasn’t been a problem so far because the slack in the job market and the economy has limited these new reserves and dollars from circulating as fast as they would under normal economic conditions. We refer to this as velocity. Once this velocity picks up and the slack is removed, then inflation would pose a great challenge for the Fed to take the reserves out of the system.”

Noiset: “Yes, inflation is a concern because that is one way to at least partly resolve the long-term debt that the government has. It can inflate its way out of those debts. If lenders believe that the U.S. government will take that route because its politicians cannot resolve their differences over the deficit problems, then the U.S. long-term borrowing rates will rise and uncertainty over interest rates and return on investments will curtail business activity in the U.S.”

 

WHAT WILL THE U.S. ECONOMY LOOK LIKE IN THE SECOND HALF OF 2011?

Hariharan: “It will be no different. The second half may shed some light on the resolution of federal debt problems and the European debt crisis, however, not enough is likely to happen to change the economy dramatically. Federal debt discussions are likely to continue. In addition, the beginning of the presidential election cycle is likely to put a hard brake on resolution of any major issues.”

Sabbarese: “It should be stronger than the first half because, as the transitory problems with the supply-side disruptions from Japan and as high oil prices dissipate, consumer spending should rebound somewhat. The supply-side problems with Japan have seriously weakened automobile sales, which are an important sector of the economy.”

Noiset: “The economy will look much like it looks today. The economy will plod along, adding jobs at a slow but consistent rate, as we slowly pull ourselves out of the psychological malaise created by the collapse of 2008-2009.”

WHEN WILL WE GET OUT OF THE RECESSION?

Hariharan: “2020 is a good year. Keep in mind that a great depression was averted and [during the Great Depression] it took the next decade and a world war to pull us out.”

Sabbarese: “Technically the recession was over in July of 2009. However, the limited GDP growth has not been sufficient to create enough economic growth to substantially increase job creation. Our economy needs to grow 4 percent on average and create a monthly average of 240,000 plus jobs a month to lower the unemployment rate to 8 percent.”

Noiset: “Technically, the economy is growing, albeit very slowly, so we are no longer in a recession. Nevertheless, the economy is not absorbing workers at a pace that it needs to in order to keep unemployment down.  If U.S. households and workers can get their confidence back, we could get a good pick up and that would snowball us out of the current malaise. It is hard to predict when that will happen, but a pick up in house prices and stock market values might do the trick.”

 

WILL 2012 BE BETTER THAN 2011?  

Hariharan: “Only marginally at best.”

Sabbarese: “Unfortunately, much of the uncertainty and conditions that act as headwinds against economic growth will still be in place in 2012. That said, GDP growth rate in 2012 should average close to 2.8 percent. The good news is that we’re moving in the right direction.”

Noiset: “I am hopeful that 2012 will bring a new optimism in the U.S. and a renewed faith in the stability of our economic system.”



 

A leader in innovative teaching and learning, Kennesaw State University offers more than 150 undergraduate, graduate and doctoral degrees to its approximately 41,000 students. With 11 colleges on two metro Atlanta campuses, Kennesaw State is a member of the University System of Georgia and the third-largest university in the state. The university’s vibrant campus culture, diverse population, strong global ties and entrepreneurial spirit draw students from throughout the region and from 92 countries across the globe. Kennesaw State is a Carnegie-designated doctoral research institution (R2), placing it among an elite group of only 6 percent of U.S. colleges and universities with an R1 or R2 status, and one of the 50 largest public institutions in the country. For more information, visit kennesaw.edu

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