Summit 2009: Economic Roundtable

The economy is slowly recovering and the recession, now the longest since the Great Depression, should hit bottom in the next couple of months.

That was about the end of the good news Wednesday morning when a panel that included two top economists and a businessman took stock of the nation’s fiscal health at the morning general session of the National Conference of State Legislatures in Philadelphia.

On a dourer note, the panels saw rising unemployment, slow action by states in spending stimulus money and long-term pessimism about efforts to regulate the financial markets as worrisome trends for the states and the nation in general.

“I think we’re going to hit bottom in the next two months but then it’s going to be a rather sluggish return. We’re not in freefall any longer,” said David Wyss (left), chief economist at Standard & Poor’s. “The parachute is open. That doesn’t mean we’re on the ground yet.”

Simon Johnson of MIT’s Sloan School of Management said unemployment may end up being a far more important indicator than gross national product in terms of when the recession is over. As bad as the official national unemployment rate is at 9.5 percent, the total unemployment rate including people who’ve dropped out of the work force or are working part time but want full-time jobs is about 16.5 percent.

That, Johnson said, may have blunted the effect on the federal stimulus package.

“I think the first stimulus was roughly right but it wasn’t targeted enough to unemployment and to states,” he said. “A second round needs more support for unemployment and to the states.”

Wyss offered a sharp disagreement. “I think it was too targeted at the states. It’s getting out too slowly,” he said. “Every congressman had to make sure his district was getting its fair share whether it needed it or not. And much of the transportation money has gone to rural areas.”

But David Cohen, an executive vice president with Comcast Corporation, suggested that the stimulus had other targets. “Stimulus is as much political and psychological theory as it is economic theory,” he said. “It did not have the political and psychological impact people thought it would.”

When it came to specific advice for states, the panelists offered both the expected and, quite possibly, some unwelcome suggestions.

The panelists agreed spending on infrastructure tends to get money into people’s pockets quickly. “I think you get the maximum impact for recovery on roads and bridges,” said Wyss. “It’s something you can do quickly because they’re existing. It’s mostly creating jobs in the United States.”

Johnson urged states to pressure the federal government to continue to make unemployment and food stamp funds available. “I’m very worried about what’s happening to the poorest people, especially in the big cities. Many lives have been devastated by this,” he said. “To the extent states can help with food stamps and unemployment, they should do it.”

Looking beyond the current recession, there was little optimism that nations would grapple effectively with one of the core problems of the current crisis—the regulation of financial institutions.

“It’s not going to be fixed,” Wyss said of the effort to improve financial regulation. “I think you’ll get something that will close some of the holes, but there’s not an appetite to do what really needs to be done. We’ve got to get the financial system fixed and operating again.”

Global regulation “is not even on the agenda,” Johnson said. “That’s not satisfactory. The real issues that got us into this crisis are not going to fixed.”

And states are not helping, Wyss said.

“States are doing their best to make it worse,” he said, by working against more central regulation, especially in the insurance industry.”

Johnson agreed. “Insurance has exactly this characteristic. You can play the regulators. These big companies are gaming you. It’s bad economics and it’s terrible politics. You have to have consolidated regulation at the national level for insurance.”

When moderator Katherine Hall Jamieson, director of the Annenberg Public Policy Center at the University of Pennsylvania, asked whether a second stimulus was needed, there was little agreement.

“I would say we don’t need another one,” said Wyss. “We need to get this one spent.”

But Johnson tended toward the need for one, and for more money to go into the hands of states.

For Cohen, it was the consumer who will lead the country back to better times and said state officials have a role.

“The most important thing is confidence and elected officials have an obligation to help build that confidence.”