Faculty share insights into economy, future

United States economic policies must change – and will change – regardless of who is elected president, two UCCS professors agreed during an economic crisis roundtable this week in the University Center.

Daphne Greenwood, professor, Economics, and Tom Zwirlein, professor, Business, shared their viewpoints during a “Soup and Bread” discussion organized by Bill Huddy, director, Oral Communications Center and co-sponsored by the Colorado Center for Policy Studies. Huddy moderated the discussion where there was general agreement on issues but differing ideas on solutions.

The “Soup and Bread” theme was a play on 1930s lines of unemployed workers as America endured the Great Depression. A repeat of those scenes isn’t likely, both professors agreed.

“The stimulus has been applied,” Zwirlein said. “We need to let it work. Things will get better.”

Greenwood agreed that leaving your funds in a bank, where they are insured, or a mutual fund where they will eventually recover is the wisest thing to do, especially for younger people.

“But we have an enormous overvaluation of houses and of stocks to work through. This makes the recession already underway likely to be worse. Two years of a sluggish economy is my best prediction,” Greenwood said. “It could be worse – a lot worse – if we aren’t smart about how the financial rescue is done and what kind of stimulus is used. But we need to remember that even with things getting worse, we’re better off than most of the world.”

But change is coming, the result of the consolidation of the banking industry and Federal Government intervention.

“We will see more regulation and you will pay more as result,” Zwirlein said.
Greenwood replied, “well, look at what not having regulations has already cost,” referencing the losses people have experienced in retirement funds, home equity, and sometimes home ownership.

As far as the $700 billion federal bailout of U.S. financial institutions, roughly the same cost as the Iraq war. If the $700 billion is loaned at interest or used to buy stock in banks, taxpayers can get their money back when these institutions recover financially, said Greenwood.

But no matter who is elected president, the effects of a blossoming federal debt, the reduced wealth of consumers, and a lack of consumer confidence will dominate the immediate future.

“Regardless of who is elected, policies are going to have to change,” Zwirlein said. “This bailout is expensive and will place a tremendous burden on younger people -- that is unless we can convince others to hold our paper and never redeem it. That’s unlikely. The effect is that interest rates will go up.”

Greenwood disagreed. “This may not affect your taxes at all if it can be paid back. And when the economy is in the doldrums with banks afraid to lend, interest rates stay low. Federal deficits helped put the economy back to work during the Great Depression and may have to do the same today”.

But she agreed that also in the short term students are likely to see auto loans and even student loans dry up, unless there is “the will at the federal level” to make sure students get them. She pointed out that students used to get loans directly from the federal government and that if banks don’t make them that may have to be the solution again.

Greenwood emphasized that “market fundamentalism” – the idea that free markets work so well they don’t need regulation – has been discredited. The days of local banks issuing home mortgages in a community -- and after an extensive review of an individual’s ability to repay -- are gone. Now, home mortgages are subdivided into financial instruments that are sold globally with little regard for the individual or community. For that reason, she supports federal intervention into helping people renegotiate their mortgages and stay in their homes.

“If you lost your job or had a bad crop, it used to be you could renegotiate with the local bank who gave you the loan and still owned it. Now, you don’t even know who to call.”

-- Tom Hutton

 

“...we have an enormous overvaluation of houses and of stocks to work through...”

 

 

 

“Regardless of who is elected, policies are going to have to change”

 

 

 

“...in the short term students are likely to see auto loans and even student loans dry up...”

 

 

 

“market fundamentalism – the idea that free markets work so well they don’t need regulation – has been discredited.”