The U.S. economy will recover from its current crisis, according to a panel of experts assembled at Carnegie Mellon University. But, as is often the case, the devil is in the details.
The panel, assembled as part of Impact Weekend and moderated by University Provost Mark S. Kamlet, was titled “The Global Economy: Policies and Strategies for Recovery.”
The panelists’ political ideologies and economic theories covered a broad spectrum, with some offering positive reviews for the Obama administration’s recovery plan and others criticizing the stimulus package for focusing on the wrong priorities.
Participants included Allan Meltzer, The Allan H. Meltzer University Professor of Political Economy at the Tepper School of Business; Charles Evans, president and chief executive officer of the Federal Reserve Bank of Chicago and an alumnus of the Tepper School (MSIA 1985, PhD 1989); Lee Branstetter, who holds joint appointments with Heinz College and the College of Humanities and Social Sciences; Stuart Hoffman, senior vice president and chief economist for The PNC Financial Services Group; and Raymond Lane, a life trustee of Carnegie Mellon University and managing partner at Kleiner Perkins Caufield & Byers, a leading Silicon Valley venture capital firm.
Lane, who described his opinion of the stimulus package as “mixed,” says communities outside of hard-hit regions such as southern Florida, southern California, and Las Vegas are in a “normal” recession, with 80 to 90 percent of U.S. consumers living within their means.
“Normal recessions are functional,” he said. “They clean out fat.”
By contrast, Meltzer said the United States will be “lucky if we see 1 ½ percent growth for awhile,” which falls short of President Obama’s forecast of 4 percent growth. He also faulted the stimulus package for having “too much redistribution, not enough real stimulus.”
The crisis has reinforced how crucial a role the United States plays in the overall health of the global economy, Branstetter noted. Though China and India seem relatively healthy, both “are still poor countries” relative to the U.S., he said.
One area where China and India are likely to play a key role is in development of clean technology, the panelists said.
As a venture capitalist, Lane has also championed investments in clean energy technologies, something he said requires government help through spending or policy changes to gain momentum. He added that China and India are both starting to take advantage of technologies that the U.S. has yet to embrace.
By contrast, Meltzer says it’s 26 times more expensive to subsidize carbon-free technology than traditional energy sources such as oil and coal, which complicates government’s ability to assist in its development.
Meltzer favors a carbon tax over a cap-and-trade system as a form of government incentive, but adds that such a system had little success in Europe and would also require buy-in from India and China.
“That’s going to cost us money,” he said, adding that those emerging economies hope to grow on the strength of cheap energy, much as the United States did.
In terms of solving the current crisis, history suggests three solutions, says Branstetter: fiscal stimulus, economic stimulus, and a bailout. It’s rare to emerge from an economic downturn without spending public funds, he says, adding that the panelists merely disagree on how that money should be spent.
In closing, the panel acknowledged that, given the historical data that exists, economists can generally agree on how an economy will react when stimulated by government actions and monetary policies. Where they will often differ, however, is on the perceived “correct” path to follow, as political perspectives and priorities come into play.