Horizon, Host: Ted Simons

November 12, 2008


Host: Ted Simons

The Election and the Economy


  • Arizona State University professors talk about how an Obama administration may affect the economy.
Guests:
  • Dr. Anthony Sanders, Professor of Finance and Real Estate, Arizona State University
  • Dr. Tim James - Associate Professer, W.P. Carey Economics, Arizona State University
Category: Business/Economy

View Transcript
Ted Simons
>> Hello and welcome to Horizon. I’m Ted Simons. President-elect Barack Obama ran on a platform of positive change. And that's certainly something our economy could use right now. Job losses and foreclosures continue to grow. And government officials keep looking for answers in stimulus plans and financial bailouts. Here to share their views are experts from Arizona State University's W.P. Carey School of Business, Dr. Anthony Sanders, professor of Finance and Real Estate and Finance Stand Economic Director Dr. Tim James thank you for joining us on Horizon. Main Street spoke. So now what can Main Street expect from an Obama administration?

Anthony Sanders
>> Well, we're definitely going to see a different type of economic plan going forward. We think. I mean, he hasn't finalized anything yet. But in addition to catching Valley Fever, some of us are going to see higher taxes as well. And I think Robert Rice summed it up nicely where he says Obama believes in a bottom up type of redistribution of wealth to stimulate the economy at the lower levels and hopefully that will percolate up to the top. And that's what we're seeing on hand.

Ted Simons
>> What are you seeing from an Obama administration?

Tim James
>> I would think an early stimulus package. I think the economy is in a bad way. Various elements of the stimulus package are likely to be some sort of spending on infrastructure, and other kind of Bush bailout in terms of trying to ramp up consumer spending. Some attempt to bail out the states because of falling revenues. All those things packaged together in some sort of large stimulus package that may span the two administrations.

Ted Simons
>> Talk about the concept of a stimulus package, the idea of whether or not what the Bush administration did -- and that's to send out some checks as opposed to some of the things we're talking about which is infrastructure.

Anthony Sanders
>> Well, the checks that you got from the stimulus are generally short run in nature. They may actually provide kind of a pop in consumer spending over about six months, maybe a little longer if you're lucky. But those kind would be short-term in nature and they don't really provide a -- we're looking for something that's a little longer term in nature. We need something. And that's where I think some of the works packages he's talking about may actually at least provide for some segment of the population employment, stability and grow the economy in part --
Ted Simons
>> How much does consumer confidence play into all of this?

Anthony Sanders
>> Well, consumer confidence is incredibly important. But given what we're doing in terms of the bank bailout, I think there's kind of a loss of confidence that's going on right now, particularly since the -- for example we started TARP, troubled asset relief program. Now it's suddenly something troubled something relief program. Now troubled bank relief program or A.I.G. or whatever we're going to put under the TARP. No longer loans.

Ted Simons
>> You'll be testifying in front of congress I believe late this week on just this?

Anthony Sanders
>> Friday I’m testifying on tarp, what we should be doing with TARP or what we're not going to with TARP now. And what's the Obama administration going to be doing with the loans and everything. Arizona is just so important.

Ted Simons
>> I want to get back to consumer confidence and how important that is. Is there an overreaction right now from the markets, from the banks, from consumers, from just about everyone?

Tim James
>> It's difficult to judge whether there's an overreaction. Nobody I think truly knows how bad things are actually likely to turn out to be. People are re-estimating, constantly reforecasting how bad the recession will be. I think the latest estimates tell us that things aren't going to really start to recover until 2010 and then we won't get back to long run growth until 2011. In the context of that, describing a consumer as being overreactive is quite difficult. Because a lot of people are probably particularly worried about their own circumstances and their own job security in that environment.

Ted Simons
>> So in that environment, what can a President Obama do or maybe just even say to get that confidence up a little bit and to get people out there, not being so afraid to spend money?

Tim James
>> I think that's really -- that is the acid question as it were in relation to where we are at the moment. How do we get consumer confidence back to a level where people still feel happy to go out and spend money. And to go back to an old phrase, it's the $64,000 I think there'll be a little bit of an Obama bounce associated with the new administration and a honeymoon period that may be reflected to some extent in terms of people's attitude towards their own existence. Maybe that would make them a little bit more confident. But I think fundamentally what we've got to do is put more spending back into the economy. And I think a stimulus package is just what we really need at the moment in order for to us do that.

Ted Simons
>> Stimulus package makes sense to you. But is that really the best that an Obama administration can do right at the start?


Anthony Sanders
>> In the short run. I think what he's talking about is he wants to come out of the chute, he wants to come out hard, he wants to do something. Stimulus packages are great for that. But once again, if it's simply like a 1500, $2,000 check, that does not go very far these days. I mean, certain types of goods and services. But it doesn't really pick up the economy. It has to be done in conjunction with something else. And again, economists like he and I could probably spend the rest of the night -- I’m a big tax cut type of person. My guess is he is a big tax increase type of person. Trying to get a debate going here. [laughter] But no, I think tax cuts in the long run will have a lot to do. But again, do we spending cuts or increase spending? A different philosophy.

Tim James
>> Don't paint me into an European heavy taxer. Like now is almost a perfect time to think about a stimulus package. In many circumstances in the past it would have been the wrong policy. But what we're facing now really is a case where the standard method of coping with some of these problems, interest rate policy or monetary policy, is not going to be as effective as it would have been normally. You know, without an incredibly low interest rate there's not very much further we can go down in terms of reducing interest rates to try and stimulate the activity. And the other thing that's not going to work with us with monetary policy and interest rate policy is that banks aren't necessarily going to pass on any interest rate reductions onto Main Street. So what we're left with, in the circumstances we face, is really -- a really strong healthy stimulus package that will not totally dig us out of the hole we're in but will offer us the opportunity to maybe not make things quite as badly as they would otherwise have been. I’m not saying this thing is going to sweep away all our worries in one go. What I’m saying is if we just leave the markets the way they would normally go we're going to end up with a much worse recession than we would otherwise do if we spent money wisely.

Ted Simons
>> Other than a stimulus plan, what other ideas, homeowners, lengthening the terms and low, the interest rates and these sorts of things, helping out, American Express, the airline industry, the auto industry, are all these things going to be coming into play?

Anthony Sanders
>> All of them are coming into play. Unfortunately there's simply not or b nor should we do it. There's arguments to be made for G.M. and Ford that maybe we should let them fail and pick up the pieces and reassemble them into more successful company models. Those are questions we really have to debate. But in terms of the mortgage market, particularly in the lower three corner meaning Arizona, Nevada and California, we have people that are 20, 30, 40% upside down in their mortgages. Right now the plans they're talking about in the administration are only if you go 90 days late. And I’m saying this is like the movie "The Perfect Storm" where you have that huge wave at the end. We're sitting here. We're going to see a lot of people throw their keys at the lender. So should we be advocating a preemptive strategy of marketing loans to market which means rather than holding the book value, lowering to what the current property value is. This is a pre-emptive thing to reduce the cost of bankruptcies and slow the wave down.

Ted Simons
>> All the action taken so far by the government, has it loosened credit?


Anthony Sanders
>> Not really, no. That's why the market -- part of the reason why the market's down today is everything they're doing, everything they're injecting into their veins of the financial system, it's working a little bit. We're seeing some spreads. Even MBS spreads have widened again because there's kind of a belief now we're not going to really clear off the troubled assets off the bank books so we're back to square one, more capital into the bank.

Ted Simons
>> Do you see the same thing?

Tim James
>> Evidence of monetary policy is going to be ineffective. That's where we need to go for a stronger stimulus package. Good infrastructure spending in the states.

Ted Simons
>> Very good. Gentlemen, thank you very much for joining us on Horizon.

Anthony Sanders
>> Thanks for having you us.

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