The economy is in dire straights and Dean of the Cox School of Business Albert Niemi acknowledged this and gave his predictions of a “sluggish recovery” at the Distinguished Faculty Luncheon Tuesday afternoon.
With the nation plunging deeper into an already lengthy recession, Niemi said that he should have worn a purple suit to the lunch-a color that in some cultures is a sign of suffering.
The recession was officially declared by the Bureau of Economic Research as starting in December of 2007 when job losses began mounting. Niemi said that by this definition the nation is already 15 months into the downturn. And he could easily see it going for another 15. He discounted many economists’ beliefs that a recovery could occur in the second half of 2009, saying he viewed the recovery not occurring until spring 2010.
“In the past 30 years we have had only three recessionary periods,” Niemi said. “We sort of came to view ourselves as recession proof. And with that many economists are predicting recovery later this year, for me that is far too optimistic.”
Niemi addressed the recent surge of action regarding the stimulus bill that is being debated through congress, He said he “doesn’t care what is in it but we need to throw something at it.”
The debate has been mostly partisan squabbling over tax cuts versus direct government spending.
He said that regardless of the stimulus we should be weary of expecting immediate results. He compared the situation to the dire economic conditions of the great depression and said even after Roosevelt’s New Deal that unemployment was still 15 percent. He said many of the proposed stimulus programs in Obama’s plan are similar to Roosevelt’s New Deal.
He said what is scarier now than the great depression is the uncertainty of the severity of the crisis.
“We are treading water, and what is scary is we don’t know if we are two feet off the bottom or 200 and two miles from shore,” he said.
He said that we have found ourselves in this current crisis because of multiple factors, but that it has been a situation growing for the last two decades.
He said the Federal Reserve was “too loose for too long,” referring to interest rates. These loose rates allowed for consumers to spend 100 percent of their incomes and then spend more on the equity in their homes. He also said that both parties in congress “receive F’s” for their rampant spending.
“Greedy consumers plus a wildly spending congress plus a Fed in love with low rates for the last 20 years means you have a crisis that wont go away over night,” Niemi said.
Niemi moved on to discuss the effects of Obama’s new tax plan where more of a tax break is shifted to the middle class. He said under the Bush tax cuts, the top one percent of all earners make up 40 percent of tax income, and the top half make up 97 percent, and the bottom 40 percent virtually pay no taxes. Under Obama’s plan that 40 percent figure has been projected to become the bottom 48 percent of the economy.
“If you have half the people in a society contributing and the other half taking, that is drifting dangerously close to socialism,” he said. “And that is very dangerous for democracy.”
He also compared Obama’s idea of moving the corporate tax rate from 35 percent to 45 percent to a luxury tax policy of Jimmy Carter in the 1970s where he imposed taxes on boats to tax the rich.
“Taxing the rich through boats, all it did was kill the boating industry and run up unemployment in states like Maine, affecting a lot more than just the wealthy,” he said.
After giving what he called a “national weather forecast,” Niemi highlighted some bright points for local areas.
He said 60 percent of population growth over the next 20 years will be occurring in 5 states, including Florida, Georgia, South Carolina and topped by Texas. He said the places to be are these rapidly growing states and it is a great time to be in Dallas and at SMU.
