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You decide: Where do we go from here?
Story Date: 11/12/2012
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Source: Dr. Mike Walden, NCSU COLLEGE OF AG & LIFE SCIENCES, 11/9/12
The election is over, and in a few weeks our newly elected political
leaders will take office. The economy -- and particularly jobs -- was
clearly the top issue during the political campaigns. Two big
questions now face the office winners. What is the condition of the
economy? And what, if anything, can government do to quickly improve
the economy? I’ll give you some information and competing ideas and
then let you decide.
Most economic indicators suggest we are on the mend. The decline in
the economy from late 2007 to mid-2009 was the worst in the post-World
War II period. To distinguish the downturn, it is now commonly
referred to as the Great Recession.
But the good news is that those same economic indicators have now
moved off their lows and have trended higher during the last two
years. Gross Domestic Product -- the value of everything our country
produces -- now exceeds its pre-recession high. Consumer confidence is
over one-third better than in 2008. Construction, sales and prices of
homes have all trended higher this year. Households have paid-off over
$1 trillion of debt and are now spending more at malls, shopping
centers and other retail outlets.
Even the job picture is better. Nationally, employers have added over
4 million jobs since early 2010, and in North Carolina employers have
put more than 100,000 workers on the payroll over the same time
period. For both the nation and North Carolina, this translates to job
gains of near 3 percent. Each of the various measures of the
unemployment rate, from the narrowest to the broadest, has also
declined.
However, the economy is hardly booming. The common comment I hear when
speaking to various groups across the state is that business is
“better but not great.” In the country there are still over 4 million
fewer jobs today than before the recession, and in North Carolina the
gap is near 200,000 jobs. So this situation leads to the second big
question: What can government do to quickly improve the economy and
create jobs?
Of course, this is where we get huge disagreements. One recent
proposal is for the federal government to guarantee every unemployed
person a job. Each individual’s talents would be assessed and then
matched to government-funded positions in education, health care and
services. The cost would be high, approaching $750 billion annually
for salaries, benefits and materials for all the unemployed, but
supporters say the net costs would be lower as other social safety net
spending could be reduced.
Critics of such an approach worry not only about its cost but also
whether the jobs would be “make work,” and if the guarantee of a job
might reduce the individual’s motivation to acquire the training and
skills necessary for a private sector job.
At the other end of the spectrum is the notion that rather than
directly providing jobs, government’s role is to create the conditions
conducive for the private sector to create jobs. During the
presidential campaign, we heard four elements of this focus: changing
the tax code, reforming regulations, promoting energy development and
reducing the borrowing of the federal government.
Let me give a thumbnail summary of the debate around each of these
components. For taxes, one approach says lower tax rates, perhaps
combined with fewer deductions, can spur economic growth and jobs. But
opponents question how much impact tax rates have on growth and
whether lower rates would actually lead to more rather than less
government borrowing.
Reformers of regulations point to two new regulatory initiatives --
the Affordable (Health) Care Act and the Dodd- Frank Financial Reform
Act -- passed in the last three years as major new programs imposing
more regulations on businesses. They suggest reform or repeal of the
measures would be a plus for job creation. But backers of the new
regulations say they will mean added jobs in health care as more
people are covered by insurance and a more stable financial system
less prone to collapse.
The county has large oil and natural gas reserves both on-shore and
off-shore that can now be accessed with new technology. Studies show
that doing so could lead to over one-half million jobs nationwide by
2020. Yet skeptics argue these gains must be balanced against
potential environmental costs and a broader approach that includes
renewable energy forms.
We have been facing an issue with growing federal borrowing for over a
decade. It worsened -- as usual -- during the recession. Among many
worries, one concern is that public borrowing may crowd-out borrowing
by private companies, thereby inhibiting firms’ ability to grow jobs.
Not all macroeconomists agree with the above analysis. But for those
who do, policies that would reduce levels of federal borrowing are an
essential element in a jobs-creation policy. Of course, the big
question is how to do this.
In the coming months it will be fascinating to watch as our newly
elected public leaders confront our many economic challenges. I hope
I’ve given you a play sheet for following the debates and ultimately
arriving at your own decisions.
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