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Story Archives: 'Election year, feel-good politics'


'Election year, feel-good politics'
by Scott Rogers - posted Wednesday, January 30th, 2008 @ 7:52 pmE-mail Story E-mail Story | Print Story Print Story 
It's not currently known if the United States is in the midst of a recession or coming out of a recession or what effect a $150-billion stimulus package Congress currently is debating will have on the economy.

That's according to University of Louisiana-Monroe's Dr. Robert Eisenstadt, associate professor for economics. Eisenstadt spoke to The Ouachita Citizen Tuesday.

The data to determine if the U.S. economy is in a recession, coming out of one or about to head into a recession will not be known for several years.

"We have a lot of economic indicators that point to a recession, at least certainly to an economic slowdown," Eisenstadt said. "There's no certainty that the U.S. is in a recession, or whether we will be in one, or were in one, or about to come out of it."

"A recession is determined after the data is massaged and evaluated and massaged again," he said.

The National Bureau of Economic Research, one of the leading economic research organizations in the country, is the group that analyzes that economic data once it is available. There is about a two-year lag to obtain the data, study it and then give an opinion concerning the information.

Economists can only guess if billions of dollars in economic aid from the federal government will do any good. It may do more harm than good, Eisenstadt said, if the economy is boisterous by the time those rebate checks arrive by May or early summer. That could result in over-stimulating the economy, which could fuel inflation.

"Let's assume it (the economy) is slowing down," Eisenstadt said. "Retail sales are down nationally, home prices have fallen nationally, and we have the tightening of credit markets. So, you have a certain element of the population experiencing a negative wealth effect.

"Your home is your most significant asset, and if it's falling in value, you will feel less well-off. If you feel that way, you'll spend less money."

In the past few years, inflation has grown. That causes people to feel less wealthy because the dollar is not purchasing as much as before, Eisenstadt said.

The goal of the stimulus package is to mitigate the economic slowdown by putting quick cash into consumers' hands, which will increase purchasing by these consumers.

"The big question is will that occur?" Eisenstadt said. "I don't know. I don't know if anyone knows.

"We know that any dollar put into the hands of the consumer will be spent. But not all of that $150 billion will be rebates … some will be tax credits and incentives to businesses. And, some will spend it to pay off debt. That has some stimulus effect because you'll feel less constrained (with debt) so you'll spend out of your income.

"Some people will put it in the bank and save it."

Some consumers might opt to spend their rebate on goods and services. However, if they buy imported products, some of that money will go overseas and will have little effect on the U.S. economy.

"The problem with a stimulus package is it has a lumpy, uncertain impact," he said. "But, on the margin, any dollar injected into the economic stream will have a stimulus."

Eisenstadt said while there may be a slowdown, many taxpayers here are not affected by it. In Monroe, there never was a housing bubble, so it never experienced the bust felt in other regions.

"Retail sales in our area are pretty strong," he said. "Housing prices are not going up, but they've been flat to down for a few years now.

"We do have some job creation, so there's certainly economic activity here.

"I think this (stimulus package) has more to do with election-year, feel-good politics. If this was not an election year, I doubt there would be a huge rush to pass such a package."
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