IUSB economist sees threats looming over recovery
Posted: 06/13/2012 at 1:15 am
By: Marilyn Odendahl
Yet he is uncertain about how the trouble across the Atlantic will impact the United States.
“We have the strongest economy in the world despite how weak it’s going right now,” said David, an assistant professor of economics at Indiana University South Bend. “I would like to think that we’re going to pull through and things will continue to improve but a severe recession in Europe would definitely pull us into a recession as well. A mild recession, we might be able to weather that.”
David recently gave his views of the current condition of the economy and its future. He sees some reason for optimism and even outlined a way for Congress to boost the recovery but he also pointed to four blows that could drive the U.S. into a double-dip recession.
As the country goes so will northern Indiana, he said. Recent data indicates the recession is abating in Elkhart County. The local unemployment rate is now comfortably below 10 percent for the first time in three and a half years, and wholesale shipments of recreational vehicles continues to outpace 2011 totals.
That trend should continue if nothing else changes, David said. However, the RV industry is dependent on factors beyond its control, namely consumers having disposable income. If the national economy sinks, the region will get dragged down as well.
And whether the U.S. economy sinks or floats depends, in part, on Europe. The United States would lose its main export market if the European Union stumbles too badly over its ongoing financial mess, David explained. In addition, both the federal government and the Federal Reserve are holding a lot of euros which increases the vulnerability for a large hit to the domestic economy.
Other potential threats are just as worrisome. Areas of particular concern that would possibly push the country into another recession are:
• A trade war with China. The Obama Administration’s decision to slap antidumping tariffs on solar panels coming from China could incite the Asian giant to retaliate and eventually lead to a full scale trade war. This would place another squeeze on the U.S. export sector, which has been a strong segment of the economy, and consumers would have to pay higher prices for many products.
• Israel bombing Iran’s nuclear facilities. David believes Israel will attack Iran at some point but attributed the delay to Tehran’s acquiescence to inspections and to pressure on Israel from the White House. A military strike would drive up the price of oil and that would have a negative impact on economic growth even though the U.S., as many western nations, does not import petroleum directly from Iran.
• The presidential campaign. Strong talk from the candidates about how a bleak future will dampen consumer spending which is vital to the health of the economy.
“If you start telling everybody things are bad and how much worse they’re going to get, people are going to be quite rational and say, ‘hmmm, I better start saving more in case I lose my job, in case I lose my house.’ So they’re going to cut back on spending at the very time when you need them to not do that.”
Despite the trouble looming over the U.S. economy, David does see reason for a glimmer of optimism.
“We’re still the most entrepreneurial economy in the world and just because things are going badly, doesn’t mean the entrepreneurs are going to quit doing their thing,” David said. “So I think that we still have a lot of potential for innovation in this country . . . The potential for us to grow fairly rapidly is there, it’s just a matter of achieving the right conditions.”
One obstacle to economic growth is the question over the fate of the payroll and Bush tax cuts. If the Congress could resolve these issues, David said, it would give a nice boost to the economy. At this point, corporations are harboring piles of cash instead of investing it because they do not know what the tax situation will be.
“I’m not arguing for one answer or another,” David said. “I’m just saying they need to answer it.”
Voters will be going to the polls in November but David is unsure a change in the Oval Office will bring a stronger economy or stabilize the nation’s finances.
“I’m skeptical to be honest,” David said. “When the Republicans were in power during the last administration, they went to the trough just as badly as the Democrats. I’m a firm believer that we get the government we deserve, sad but true.”