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Macon economists discuss recession, stimulus plan

A panel discussion Wednesday at Macon State College took a look at the United States economy and some of the ramifications of past and recent decisions by the government.

The event was sponsored by the Macon State School of Business.

The current recession began during the fourth quarter of 2007, Sean Mulholland, assistant professor of economics at Mercer University, said to the gathering of more than 40 attendees.

“We are kind of back to the future,” Mulholland said. “We are kind of looking like the Great Depression.”

People are driving less, which means they are buying less new cars, home sales, which peaked in 2006, have dropped, construction spending, house starts and retail sales are all down, he said.

Also, Mulholland questioned whether the various stimulus plans would really get us where we want to be in this country.

“I think we are seeing a double-dip recession,” he said. “The stimulus is not a stimulus plan, it’s a spending plan. ... I don’t think we will see unemployment at 20 percent as we saw during the Great Depression. I think we will see firms that have put things on hold put them on hold a lot longer.”

Larry Wolfenbarger, professor of economics at Macon State, said it was necessary for the Federal Reserve to pump more money into the economy at this time, but he had some reservations.

“The Fed is taking pretty heroic steps,” Wolfenbarger said. “That doesn’t mean they will be successful. ... I don’t know how it will all play out.” But he said the Federal Reserve was doing what it could to help the economy.

Sasha Tomic, associate professor of economics and director of graduate studies in business at Wesleyan College, said the U.S. economy is not the only one in trouble and that contraction of the economy is happening in many other countries.

“The story is similar around the world,” Tomic said. “We are all connected. We feel the consequences of this even in Middle Georgia.”

It’s interesting that people complain when U.S. jobs go to other countries, but don’t hear complaints when we are “stealing jobs” from other counties, he said. He mentioned several foreign-owned companies in Bibb County, such as the Japan-based YKK zipper plant, Nichiha and South Korea-based Kumho Tire.

Trade and labor protections such as ‘buy U.S.’ and hiring only U.S. workers invites retaliation, Tomic said.

He didn’t think the question was when will the recession end, but when will employment start going back up, and what lessons have we learned during this recession.

Trip Shinn, professor of economics at Macon State, said it wasn’t just government debt that got us where we are today, but household debt. He went through a quick synopsis of the past:

Ÿ In the 1920s when people bought homes, they financed them for three to four years and they put 15 percent to 20 percent down. When they bought cars, only two-thirds of people put them on credit and they were financed for 12 months.

Ÿ In the 1930s, everything collapsed.

Ÿ In the 1940s, government was in the business of refinancing home loans and for longer terms.

Ÿ In the 1950s, about 50 percent of households had home loans.

Ÿ By the 1960s, homeownership rose to about 60 percent and only about 6 percent of people carried a credit card balance.

Ÿ In the 1970s, adjustable rate mortgages started because fixed rate mortgages carried interest rates of about 20 percent.

Ÿ In the 1980s, more people with low incomes were borrowing money. This is when mortgage-backed securities got their start.

Ÿ By the middle of this decade, about 30 percent of people had mortgage debt.

“Now only about 24 percent of people have no debt whatsoever and the average household has 13 credit cards,” Shinn said. “Foreclosures have doubled during the past two years.”

It is hard to predict the future and when the recession might end.

“This may last only until 2010, but we are losing jobs at an incredible rate. ... I think the housing market ironically will help pull us out of this.”

To contact writer Linda S. Morris, call 744-4223.

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