Americus Times-Recorder, Americus, Georgia

On Campus

February 6, 2013

Recovery — are you seeing it?

AMERICUS — Two Georgia Southwestern State University (GSW) business professors, Philip Szmedra and Randall Valentine, were featured speakers at the annual economic outlook luncheon held Tuesday at GSW’s faculty dining hall. Both professors gave their perspective on the current economic conditions and the reality of recovery. Although Szmedra and Valentine offered different views on how the federal government should be dealing with the economy and its growing debt, they did agree on one thing — that the recovery will be slow.

Szmedra’s prognosis is that the economy will continue to slowly improve and grow as 2012 indicated; however, the current rate of growth will not be enough to reduce the 7.9 percent national unemployment rate. With 1.9 million jobs to be added this year, Szmedra said it’s just enough to keep up with population growth, and the U.S. should be adding 3 million jobs a year.

In addition, Szmedra said the Consumer Price Index is expected to increase 1.5 percent and consumers may get some relief as increased domestic oil will temper oil prices.

But, according to Szmedra, the over-all indicator that the economy is on the upswing, albeit marginally, is the housing market, which has nowhere to go but up.

Locally, Szmedra cautioned concern, saying that Sumter County’s unemployment is 40 percent above the national average and suggested that the issue should be addressed by the state. In terms of agriculture, he said 2013 should be good for cotton and peanut producers. With limited supply in other countries, cotton will bring good prices. For peanuts, 2012 was a record breaking year as productivity was increased by 84 percent, Szmedra said, and the market is expected to continue to thrive.

In conclusion Szmedra reemphasized a “tapered, wimpy” recovery with growth of 2.2 to 2.4 percent. Further, he said that economists have found indicators that the recession has caused a “structural change” in how American companies do business, or more specifically, how they measure employment versus productivity.

Valentine’s case centered on the federal government’s employment of Quantitative Easing (QE), or stimulus. He explained that economic history has indicated that QE, put simply, “should not be used.”

Quantitative Easing, he explained is an integral part of Keynesian economic theory, and allows the U.S. federal government to print money to purchase securities, which keeps interest rates low.

“A seminal paper in QE” was written in 2000. Valentine was an undergrad at Mississippi State University. He said the paper addressed QE and credited it for what is known as Japan’s “lost decade,” during the 1990s when the Japanese economy slowly declined after the strong economic growth of the 1980s. It was written by Ben Bernanke and emphasized that QE should not be used. Bernanke is now Federal Reserve chairman and has employed QE as part of the Central Bank’s monetary policy over the last four years.

“Why are we using it?”

“Why did he change his mind?” Valentine asked rhetorically.

Valentine’s view is that the real trouble lies in the national debt and other countries being unwilling to buy U.S. debt because they don’t believe our economy is sound, even though the Fed and the Obama administration claim otherwise.

“No one in their right mind is going to buy U.S. debt at one percent interest,” Valentine said, adding that given that scenario, QE is the “only option.”

Besides QE, Valentine proposed that a long-term solution be employed — inflate the currency.

He said the recovery as we know it isn’t reality. It’s not felt by the average American family at the gas pump or the grocery store. The cost of everything has increased over the last three years and those costs are not figured into CPI.

Valentine said QE is essentially regulatory sleight of hand and is not a “logical reason for optimism.” But he did say that economic downturns are cyclical, and much of the worst has already happened.

Both professors addressed each other’s points following their speeches.  

Szmedra said he thinks Bernanke “saw the light,” seeing the need to pump liquidity into the economy.

Valentine countered by saying “a clean exit strategy” is lacking with the currently U.S. monetary policy — government securities must be bought. Interest rates have to go up for the economy to show realistic growth. But Valentine asserted that debt is not a major issue, that we have a currency crisis instead.

In response to one question from an audience member Szmedra said he doesn’t buy the claims that current policy “will bankrupt the country for our grandchildren.”

“That’s a straw man,” he said.

Valentine reiterated his view on QE, saying that throughout history it has not worked.

“QE is the straw man,” he said.


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