Horizon, Host: Ted Simons

March 18, 2009


Host: Ted Simons

Economic Update

  |   Video
  • Arizona State University economist Dennis Hoffman talks about the latest on the nation and the state's ailing economies.
Guests:
  • Dennis Hoffman - Economist, Arizona State University
Category: Business/Economy

View Transcript
Ted Simons:
Housing starts were up last month and retail sales are showing a bit of stability but unemployment is at a 26-year high. Federal reserve Chairman Ben Bernanke says he thinks the recession could end this year. Here to give us an update on the economy is Dennis Hoffman, an Arizona State University economist. Dennis, always a pleasure. Thanks for joining us.

Dennis Hoffman:
Ted, good to see you.

Ted Simons:
Has the economy hit bottom yet? And if so, if not, I mean, how are we going to know it's hit bottom?

Dennis Hoffman:
Well, mixed signals right now. Maybe a little signs of life here and there. If you watch daily data, the things that worry me continue to be lackluster withholdings collections. That's a sign that people's incomes haven't rebounded and there's not enough people working. Retail sales still pretty, pretty bad, automobile sales just horrible. But maybe a little bit of stability in housing. Kind of tough to sort it out because historically we have never had this kind of foreclosure rate but in terms of housing turnover a little bit numbers. Maybe -- I wouldn't say stability in price but we are frying to find this mucky bottom kind of thing bouncing along here. What we have got to do is we have got to see some numbers in terms of retail sales transactions that stabilize a bit in the economy. Then we will know that things are getting a little bit better.

Ted Simons:
Are there indications that banks are starting to loosen up?

Dennis Hoffman:
Well, I think there's a lot of pressure on the banking community to certainly loosen up and insurance community, the A.I.G. boys are taking it pretty hard with bonuses. And, in fact, frankly that's a complex story. But I think that there is a lot of pressure on the financial community to loosen up lending standards. The fed made another massive injection today. That should help housing. So, you know, I think there's reason to hope. So if Bernanke says there's a chance by the end of the year or next looks to me like he's willing to put the fire power behind it to get there.

Ted Simons:
We are seeing stocks doing relatively well here the last week or so. First of all, why? And secondarily, will it be sustained?

Dennis Hoffman:
Right.

Ted Simons:
Do you think it might be sustained?

Dennis Hoffman:
Another great stock tip for you. Buy two weeks ago. That's when you need to buy. Will it sustain? The adage in markets, it's a bear market down more than 20%. Well more than 20%. And so people talk about a dead cat bounce in a bear market. In other words, is this just a fake rally and it will continue to slide? You know, a number of us are hopeful that, you know, this is, again, I am not saying stocks are going to go straight up from here. That's unlikely. But people are suggesting that, you know, maybe equities are trying to find bottom here. Investors are trying to regain confidence. Ted, this is all about confidence. It starts with the consumer or starts with the investor or starts with a business. You can't tell where it starts. It's all a big bundle.

Ted Simons:
Let's talk about confidence and back to A.I.G. and these retention contracts and the controversy therein. People are upset about this. They are awfully angry over these things. Can that anger that upset itself affect the economy?

Dennis Hoffman:
Sure, it can. I think the media buzz around this, you know, one of the unfortunate things about the debacle in the credit markets last fall is that it took place during 24-hour news cycle, presidential campaign period. So it was all people got all whipped up with the announcements on this. If you look at A.I.G., some thieves’ bonuses are on contract to try to retain people that are trying to work through these bad assets. The people that made the bad bets are gone. The people that committed most of the egregious problems at A.I.G. are out of there. So they are trying to hold on to people who are actually working at eliminating their own jobs because once they get this all worked off, there's no demand for them. So how do you retain these guys, you know, while you are at it? Well, what did we do? We made them all sound like, you know, the evil incarnate.

Ted Simons:
When you had that kind of infusion of money from the federal government, it's not bankruptcy; it's kind of a different form of takeover.

Dennis Hoffman:
Absolutely.

Ted Simons:
It does seem like all bets are off including a lot of contracts, doesn't it?

Dennis Hoffman:
Absolutely, absolutely.

Ted Simons:
Let’s go to Arizona real quickly here. There's a lot of talk about a temporary sales tax, a temporary income tax increase, something along these lines to get money, $1 billion that the governor wants to see into the state for two, three years, something along these lines. From an economic standpoint, does that make sense?

Dennis Hoffman:
Actually, I think it does. Let me kind of put some parameters around this. The hole is huge. I have a lot of compassion for policymakers now down there that are trying to confront this huge problem. Let's call it a $3 billion problem. So the governor is saying, hey, let's temporarily trying to deal with some of that problem through revenue enhancement. Why not? You got to turn to every option that you can. You cannot, I have said repeatedly, you cannot cut your way out of this problem nor can you completely tax your way out of this problem. I think all options need to be on the table and I think it was a bold move. Arguably the move of a leader to stand up in front of people and say, look, we have got to consider all of these options now and maybe taxes need to be on the table.

Ted Simons:
Critics, say, however, a recession is the worst time to institute a tax or raise taxes, whatever. Are they wrong?

Dennis Hoffman:
History time, today, 1990, 1991, last time we did it, major recession. The end of a long down turn in housing, policymakers said, look, enough is enough. We got to fix this fiscal situation. Back then they fixed the fiscal situation and they raised taxes. What happened? Five of the strongest growth years this state has ever seen.

Ted Simons:
Then where does that idea that a recession is the worst time to raise taxes. Where does that come from? Where is it grounded?

Dennis Hoffman:
Well, look. Taxes by themselves are leakage from the spending stream. OK. Taxes are a leakage, they are a negative certainly. But you have to consider the counter factual. What is the alternative? The alternative is massive cuts and actually there's a lot of economics that suggest the cuts actually, on the margin, are worse for the economy than modest tax increases would be. So what I am arguing is that taxes, small taxes on the margin, fixing this fiscal situation, by taking tax rates and dialing them back to the say mid '90s level, by the way, if we had mid '90s tax levels, we wouldn't have tax cuts.

Ted Simons:
They may have led to something we have right now. We got about 30 seconds left. I want you to answer me this.

Dennis Hoffman:
Go ahead. I will take it straight on.

Ted Simons:
30 seconds. Better a sales tax or an increase in income tax?

Dennis Hoffman:
Well, I think you need to consider, I think you need to consider both. I think that consumption based taxes likes sales taxes may be the least distortionary although I worry a little bit about our base. Our income tax rates are really, really low. Hey, maybe a flat tax. Maybe we ought to be thinking about innovative kind of ways to structure an income tax.

Ted Simons:
All right. We will stop you right there. Dennis thanks so much for joining us.

Dennis Hoffman:
Great to be here, Ted.

Flexible Displays

  |   Video
  • Researchers at Arizona State University's Flexible Display Center are developing flexible video displays. Learn about the people involved and the manufacturing process.
Guests:
  • Shawn O'Rourke - Director, ASU Flexible Display Center
Category: Science

View Transcript
Ted Simons:
Researchers at Arizona State University are working on a dream of flat, flexible video displays. Scientists are figuring out how to engineer the screen and design a manufacturing process. Mike Sauceda and Scott Olson tell us more about the flexible display center at A.S.U.

Mike Sauceda:
Ever since television was invented people have been envisioning a flat flexible display. We have flat screens at home. The dream of the flat display is made a reality at the Arizona State University Flexible Display Center.

Nick Colaneri:
The Flexible Display Center was founded a little over five years ago with a substantial contract from the Army. In its first five years, it represents about $100 million in investment, about evenly split between the U.S. Army and Arizona State University, taxpayers of Arizona. The purpose was to try and accelerate the solution of engineering problems associated with making flexible display an actual reality.

Mike Sauceda:
Prototypes have been developed and tested by the Army. The Army liked the work being done by the Flexible Display Center so much it signed up for another five-year, $50 million contract.

Thomas Killion:
They have made significant progress. It's honestly somewhat stunning to me how much progress they have made over the last five years. And I foresee even greater progress in the future, getting more into the domain of color, and reducing the power demands that go into these devices to make them really rugged and portable so we can give them to our soldiers in the field in the future.

Michael Crow:
The exciting thing from the University's perspective is that this is a new way for doing business because the way that this problem was articulated was very different than I think some many others which is the articulation of what the technological application would be, without all of the science having already been worked out. And not the technology not worked out and the manufacturing not work out. Meaning some of the science actually isn't worked out. Please do all of those things together at the same time rather than in a linear fashion which then elongates the process to solution.

Mike Sauceda:
While the Army is still a driving force for the work going on in the Flexible Display Center, the school has many industrial partners some of whom provide the material used for displays. The result has been small flat screens at first made on stainless steel and now plastic.

Nick Colaneri:
Steel is heavier. It's electrically conducting which provides some additional headaches from a technical point of view. It has a tendency to crease and dent in ways that are not -- that compromise the mechanical robustness of the display. You also can't see through it which turns out to be important in the architecture of some display technologies. For example, organic displays and all of those things motivated the migration to plastic.

Mike Sauceda:
The flexible displays are made using three types of technologies. Two of the technologies use materials that reflect light instead of producing their own. What the advantage being a still image can be up on the screen with no power required. Power is only required to change the image.

Shawn O’Rourke:
We have three core electro-optic materials we are working with in conjunction with our partners. First and primary one is technology called E-ink. That's a company out of Cambridge, Massachusetts, and what exactly as you said there is black and white ball suspended in a microcapsule and by applying a voltage on our back plane you are able to move or right the image much like the appearance of newsprint. And so it's been coined by many in the industry E-paper as part of that work. And it's very low power. Very, very good in direct sunlight. And very rugged. The E-ink itself is also another plastic material that's laminated on top of our plastic back plane. So it's fully plastic when it's fully integrated and built. Second technology we have is from a company Kent Displays in Kent, Ohio, and is a liquid crystal technology and it's a reflective technology like E-ink but here there's a liquid crystal material not very much different from liquid crystal materials in your flat panel TVs at home but instead of letting light through the liquid crystal is bent in such a way it reflects light of certain wavelengths. And so there you apply again a voltage and you either block the light or allow the light to pass through. And you get either a kind of black and white or gray image that's part of that.

Mike Sauceda:
While the first two technologies are inherently black and white that can be made into a color screen the third technology is inherently color and requires constant power to maintain an image because it produces its own light.

Shawn O’Rourke:
The third electro-optic technique we are working on here at the center is something called organic light emitting displays. And they are very interesting technology in that they are full color video rate type displays very much like liquid crystal displays that are in your living rooms today. The big difference with OLEDs is instead of using a back light and color filters to let light through OLED displays are pixilated red, green, and blue, organic materials on top of our back plane that then switch just like a conventional TV. What that allows is the organic materials are integrated directly on the TV. You make very thin, very low power flexible full color display.

Mike Sauceda:
Materials to turn the plastic disks into displays are deposited on to the substrate through vacuum vapor deposition where thin layers of metal are built up. The flexible display center has a full manufacturing line to work out the challenges of putting the display on a flexible material as opposed to a rigid surface.

Shawn O’Rourke:
We work in two substrates. This is from our partner DuPont Films. And there's a lot of aspect to that. The first we had to lower the manufacturing temperature to be compatible with this flat plastic. It melts at 210 degrees Centigrade. We had to spend about a year working on these new lower temperature semi-conductor manufacturing processes to make sure that nothing came out warped, bowed, melted or burned as part of the process. The second challenge we had to do is that glass is atomically smooth. It's atomically smooth. Plastic, while it looks smooth, scratches very easily, and so we worked very closely with our partner to develop a coating on top of this plastic that makes it as smooth as glass, even through some handling. Like a hard coat property to allow regular handling before you actually get into it the manufacturing process to avoid all of that, excuse knee, any of that defectivity.

Mike Sauceda:
Although the traditional manufacturing method is being used to make Flexible Display the dream is to make everything flexible and have a device totally flat and flexible.

Shawn O’Rourke:
That includes sensor, imaging arrays, a variety of platforms that can be integrated into fully electronic flexible systems so you can have your flexible memory, your flexible power, and your flexible display all on one substrate.

Legislative Update

  |   Video
  • Jim Small, from Arizona Capitol Times, reports on the latest from the state capitol.
Guests:
  • Jim Small - Arizona Capitol Times
Category: Legislature

View Transcript
Ted Simons:
Good evening. I'm Ted Simons. State lawmakers are knee deep in budget work. They restored cuts made to several programs in the '09 project. Here's Arizona Capitol Times reporter Jim Small. Good to have you back on the show. Late today we get word of familiar call out of the treasurer's office that we could be running out of cash, what, in a matter of days?

Jim Small:
The treasurer said the state is on the verge of basically having no money all in its account. It only had money today to pay its bills by transferring money in from the rainy day fund and basically wiping that out. Last week it took a federal $300 million transfer as part of the stimulus package to let the state pay its bills at the end of the weeks. What this is leading to is tomorrow, tomorrow morning, the Loan Commission is going to be holding an emergency meeting and they are going to decide on basically an interest rate that the state will play for short-term borrowing for day to day loans for those days when it looks like the state is, for, you know, days when expenditures are going to outpace incoming revenue.

Ted Simons:
The treasurer's announcement today, does this mean the state will or could take out day to day loans?

Jim Small:
Basically, this means the state will. It will certainly have to by the middle of April, April 15th, there's a payment that has to go to education to the schools, and that payment, April is one of those months where the state has a double payment where they pay more than they normally do and it's going to take the state couple hundred million dollars, $250 million or so to pay those bills and basically stay solvent.

Ted Simons:
Last time we had one of these meetings the governor and the treasurer did not get along all that well. Different governor, different outcome likely?

Jim Small:
I would expect so, yeah. Former Governor Napolitano in January when they had the last Loan Commission meeting, she -- basically they didn't set a rate. She, you know, told Dean Martin what she thought of his idea and in that meeting to borrow, and walked out of the room. And so this one should be different. He said he's been working with the governor's office for a couple of weeks to schedule this meeting and try to find a time that would work. And basically now is the time to do it.

Ted Simons:
This current governor asked for a stimulus money, federal stimulus money, the package, what, like two weeks ago and we are just finding out about this now. Why was this not announced originally?

Jim Small:
The explanation that came from the governor's office was, well, you know, she's talked about taking this money and how much we need this money. So we didn't really think it was that important that she sent the letter to the president saying, Arizona intends to get this money and into the economy. It's kind of puzzling to most people down there, lawmakers, media, everyone, kind of looked at that and went, well, this happened March 5th, date after she made her big speech before the legislature. Why wouldn't you tell lawmakers? The Democrats in the house had two press conference conferences since that day to say, governor, we want you to apply for this money and say Arizona will take this money. And, you know, help certain programs. So it is kind of puzzling.

Ted Simons:
It was interesting, yeah, because Democrats were criticizing, why would you not just respond and say, it's already done, knock it off. They didn't go that far.

Jim Small:
No, no. Basically no one, no one knew. One of the reporters at the A.P. was the first to find this out just was talking with him today; he was talking about the governor's spokesperson and then got this information.

Ted Simons:
Interesting letter. As you wrote, she criticized the stimulus while at the same time saying, we'll take it.

Jim Small:
Yeah, and her main criticism is, look, Arizona has a structural budget problem. We have revenues, you know, that are far in excess or expenditures that are far in excess of what we are going to be getting in revenues in any time soon. Over the next five years we are going to see a declaration accumulation total of 20, $25 billion worth of deficit if we don't change things. She said this money is really one-time money. It's not going to help us bridge that gap and bring those, the revenues and expenditures closer together. So in that sense it's kind of a crutch and it could make these things worse down the road but she qualified that by saying, its taxpayer money and Arizonans pay taxes and we need the money because we can't do this all at once.

Ted Simons:
The status of a temporary tax going to voters, where do we stand on that?

Jim Small:
Not much different than a few weeks ago when she announced her desire to see a tax increase to help solve the budget problem. Lawmakers, probably lawmakers have been very vocal against the idea. It's a recession. Common wisdom is that if you implement a tax during a recession, it hurts economic recovery. They don't want to see that. A number of Republicans have signed no new tax pledges which, you know, when you sign that kind of a thing you have to go for an election every two years. You don't want to be pegged as a flip-flopper or someone who raised taxes. It's never good news.

Ted Simons:
Not necessarily because of this but for other reasons we keep hearing and reading about possible fractures in the Senate and in the house with the governor's office and just among the GOP caucus members in general. What are you hearing down there? What's going?

Jim Small:
When it comes to the governor's office there is definitely a sense of frustration among specifically Republican lawmakers. They really I think had dreams of everything being, being happy and being smooth going with a Republican governor in office. Most of them haven't had, haven't been in the legislature with a Republican governor. They have only known Governor Napolitano. So they are starting to realize that, well, you know, there's still conflicts, we are still fighting. The combination I think of the natural tension you have between an executive branch and a legislative branch combined with the call for a tax increase which, a number of Republicans see as, you know, essentially heretical for Republican philosophy, it's really creating a lot of tension and throw in the fact they don't think they are getting enough communication from the governor's office, they don't know what's going on. This is something I think that's going to develop and probably get -- might actually get worse.

Ted Simons:
How about in the Senate where we hear the majority whip and the Senate president may not be getting along all that well?

Jim Small:
There was a lot of talk last week over that bill you referenced about refunding some or reappropriating some child care subsidy money. The majority whip Pamela Gorman had apparently tried to put the brakes on that bill going through the process. In part because she didn't like some of the changes that were made in the house that she wanted to -- she told the media yesterday it was because she wanted to make sure members had a chance to understand the bill, knew what they were voting on. The rumors were rumors that she was threatened with get he can her leadership position pulled. There's been a lot of rancor around this and a lot of speculation about it. But, you know, as of yesterday, publicly, at least, things seemed to be fine between the Republican leadership in the Senate.

Ted Simons:
I think everyone -- a hug was referred to.

Jim Small:
Yes.

Ted Simons:
Allegedly occur.

Jim Small:
They hugged and made up.

Ted Simons:
Jim, always a pleasure. Thanks for joining us.

Jim Small:
Thanks for having me, Ted.

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