At this year’s forum, NMSU economists Jim Peach, Chris Erickson and Ken Martin presented quite a few thought-provoking findings, predictions and recommendations. Here are some factoids that caught my attention:
- Banks are holding up to 250 times more cash reserves than normal. The main reason they’re not lending is because there’s not demand. There are businesses and individuals who could qualify but they are, for the most part, not asking for money. Professor Martin suggested that this was due to low confidence and high uncertainty about upcoming regulations.
- New Mexico’s economy is doing better than the nation. Las Cruces, in particular, is doing better than other cities in the region. This is largely due to an influx of troops to Fort Bliss (which has accounted for about 1 percent growth each year for the last five years) and also a large retirement community who largely rely on fixed incomes that haven’t been as hurt by the economic downturn.
- Professor Erickson presented the possibility that oil and gas reserves, revenues from which account for a lot of New Mexico’s state monies, could be used up in 25 years. This was news to me – I assumed that oil and gas would be a part of New Mexico’s energy portfolio for much longer than that. To me, this argues for diversifying our energy portfolio ASAP.
- The smartest long-term economic development project is reinvesting in our schools, according to Professor Erickson. Professor Peach gained a few wry chuckles from his droll comment, “our schools should be as nice as our casinos.”
Larger picture
In terms of larger-picture discussions, I was most interested in their discussion of stimulus initiatives and tax policy.
“We know how to fix this problem”
When asked how to strengthen our weak economy and prevent slipping back into recession, Professor Peach, with arm-waving exasperation, exclaimed, “we know how to fix this problem.” The solution to the problem is more stimulus, especially in the form of “massive public works programs.”
Professor Erickson agreed, arguing for another stimulus (consisting of both increased spending and tax cuts) of about $1 trillion. Why do we need more stimulus?
- According to Professor Peach, the original stimulus was only half the size that it should have been. He argued that we’ve seen stimulus work effectively both in the United States (during the Savings and Loans bubble) and around the world.
- Stimulus can provide direct government spending, which fuels the economy. As it is now, people and businesses are hesitant to borrow and banks are hesitant to lend. Both consumers and businesses are holding on to their money and therefore are not spending enough to fuel economic growth. While this increased frugality has helped household savings rates, the larger economy is stalling out. Furthermore, Professor Peach argued, direct government spending on projects puts people to work rather than increasing unemployment and welfare benefits.
- We need the sorts of projects that stimulus spending can pay for. Professor Peach argued that the country needs to undertake a massive public works program similar to those of Eisenhower and Kennedy. He emphasized increased investment in infrastructure, transit and our schools. We can bolster the economy and also improve the country’s faltering infrastructure.
So why isn’t there more stimulus spending?
If we know that keeping the economy out of the ditch involved more stimulus spending, why aren’t we doing that? Because, according to Professor Erickson, there’s “no political appetite” for more stimulus. To me this seems attributable to the dysfunctional and acrimonious tone of our public dialogue. The experts are drowned out by the pundits, who are more persuasive and entertaining.
Will we be able to put aside partisan differences in order to solve our problems? According to these economists, the recession would be less painful if we could. All the economists agreed that concerns about future debt and inflation were trumped by the cost of our current high unemployment rate.
Raise taxes
The other point that I found compelling was the unequivocal support for tax increases on the wealthy (letting the Bush Tax cuts sunset, for example). After qualifying himself as a “libertarian, and market-oriented economist,” Professor Erickson said the following:
“The wealthy in society, to a large extent – and the eastern elites, and in Washington D.C. – have managed to, in a certain sense, corrupt the system so that the benefits are flowing more to them than would be justified in a completely free market. One of the ways to balance so that we get an outcome that is more consistent with a free market is to tax the rich… I think a higher tax rate on the wealthy is justified in the current circumstances.”
I was especially interested in this argument that income is currently being redistributed unfairly to the rich. So the question for us is not whether we support income redistribution – it’s already happening – the question is whether we want the income to continue to accumulate (as it has for the last 30 years or so) primarily to the rich.
This topic warrants an entire series of posts, but I think that most of us can agree that the strength of our country has often resided in a strong middle class. Current tax policy doesn’t support a strong middle class. In fact, we’ve seen that the middle class is shrinking and every class but the rich is losing ground. The wealthy have distorted the free market system to redistribute the income upward. Good, progressive tax policy can level the playing field for the rest of us.
Take some time to watch the forum and hear these experts’ thoughts about the local, state and national economy.
Nick Voges is the blogger behind NMPolitics.net’s Zeitgeist. E-mail him at nick@nmpolitics.net.